Consolidated financial statements according to IAS/IFRS: recent innovations : what's new under IFRS 11? Evidence from an italian case study

Abstract

In May 2011, the International Accounting Standards Board (IASB) issued a set of new International Financial Reporting Standards (IFRSs) which are effective for annual periods beginning on or after 1 January 2013: (i) IFRS 10 Consolidated Financial Statements, (ii) IFRS 11 Joint Arrangements, and (iii) IFRS 12 Disclosure of Interests in Other Entities. The European Union (Regulation No 1254/2012) endorsed these standards and it has established that each company shall apply them, at the latest, as from the commencement date of its first financial year starting on or after 1 January 2014. In particular, this thesis focuses on the new requirements established by IFRS 11. This new standard supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers and applies to all entities that are party to a joint arrangement (while all of the disclosure requirements for joint arrangements are included in IFRS 12). By issuing IFRS 11, the IASB introduced an overhaul of the existing accounting for joint arrangements. In this regard, management should carefully evaluate the new requirements, as they may have a significant impact on how an entity can present its income statement and balance sheet. The innovations established under IFRS 11 mainly regard two aspects: (i) the classification (and the accounting requirements) now focus on rights and obligations of the parties as criteria for demarcation between joint operations and joint ventures; (ii) the accounting option for joint ventures has been eliminated; consequently, all joint ventures have to be recorded in the consolidated financial statements using the equity method (IFRS 11.24). In this regard, this thesis aims to analyse the new criteria established under IFRS 11 and to investigate its effects on consolidated financial statements. Since the application of IFRS 11 is not at full speed within the EU, complete empirical researches are not possible right now. In fact, the annual reports of the entities applying IFRS 11 are not available at this stage, so we cannot be certain about the effects of adopting the standard. However, initial empirical evidence of the effects of IFRS 11 on consolidated financial statements are provided in the last chapter of this thesis through a case study. To this end, it is illustrated how an international Group dealt with all the phases that had led to the implementation of this new standard. Moreover, thanks to the data of the Group interim financial report, it is also illustrated the impact of IFRS 11 on the main key performance indicators.