| Better reflect the nature and economic substance of the investment in the joint venture, producing higher quality information, since it better demonstrates the level of interaction of the investor in the investee, the values of the investee, as well as the risks to which the investor is exposed. |
Betancourt and Baril (2013Betancourt, L., & Baril, C. P. (2013). Accounting for joint ventures moves closer to convergence. The CPA Journal, 83(2), 26-31.), Richardson et al. (2012Martins, G. A., & Theóphilo, C. R. (2009). Metodologia da investigação científica para ciências sociais aplicadas (2a. ed.). São Paulo, SP: Atlas.). |
| Proportionate consolidation makes it impossible for investors to use investments in joint ventures to keep off-balance sheet liabilities, which could result in a misleading view of the investor's actual financial position. |
Betancourt and Baril (2013Betancourt, L., & Baril, C. P. (2013). Accounting for joint ventures moves closer to convergence. The CPA Journal, 83(2), 26-31.), Furuta (2005Furuta, F. (2005). Estudo da consolidação proporcional nas empresas que atuam no mercado brasileiro (Master’s Thesis, Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo, São Paulo). Retrieved from http://www.teses.usp.br/teses/disponiveis/12/12136/tde-05102006-174105/pt-br.php.
http://www.teses.usp.br/teses/disponivei...
), Lourenço and Curto (2010Lourenço, I. C., & Curto, J. D. (2010). Determinants of the accounting choice between alternative reporting methods for interests in jointly controlled entities. European Accounting Review , 19(4), 739-773.), Reklau (1977Reklau, D. L. (1977). Accounting for investments in joint ventures - a reexamination. The Journal of Accountancy, 144(3), 96-103. ), Richardson et al. (2012Martins, G. A., & Theóphilo, C. R. (2009). Metodologia da investigação científica para ciências sociais aplicadas (2a. ed.). São Paulo, SP: Atlas.). |
| By recognizing investments in joint ventures using the equity method, two investments with quite distinctive characteristics will be accounted in the same way: investments in associates, where there is only significant influence, and investments in joint ventures, in which the investor has joint control. The level of interaction between the investor and the investee is higher when there is joint control than when there is only significant influence. |
Saccon and Dima (2015Saccon, C., & Dima, S. M. (2015). Financial reporting for joint ventures and capital markets reactions. International Journal of Economics and Business Research, 9(2), 158-169.), Soonawalla (2006Soonawalla, K. (2006). Accounting for joint ventures and associates in Canada, UK, and US: do US rules hide information? Journal of Business Finance & Accounting, 33(3-4), 395-417.). |
|
Equity Method-friendly
|
|
Arguments
|
Source
|
| The proportionate consolidation would be contrary to the definitions of assets and liabilities of the Conceptual Framework, given that a jointly controlled asset does not meet the concept of control required in the definition of an asset, since the investor cannot control, through the use or right of use, its proportional share of the assets of the joint venture. Likewise, the liabilities of the joint venture do not represent current obligations to the investor. |
Graham et al. (2003Graham, R. C., King, R. D., & Morrill, C. K. (2003). Decision usefulness of alternative joint venture reporting methods. Accounting Horizons, 17(2), 123-137.), IASB (2007bInternational Accounting Standards Board. (2007b). Basis for Conclusion on Exposure Draft 09 Joint Arrangements. Retrieved from http://www.hkicpa.org.hk/file/media/section6_standards/standards/FinancialReporting/ed-pdf-2007/ED-ED9-IASB-bc.pdf
http://www.hkicpa.org.hk/file/media/sect...
), Milburn and Chant (1999Milburn, J. A., & Chant, P. D. (1999). Reporting interests in joint ventures and similar arrangements. Norwalk, CT: Financial Accounting Standards Board.). |
| Assets and liabilities are of the joint venture. The joint venturers have only rights over the net assets of the joint venture, that is, the result generated by a set of assets and liabilities and not rights on each asset and obligations on each liability of the investee. Therefore, the equity method would be more appropriate than proportionate consolidation. |
Furuta (2005Furuta, F. (2005). Estudo da consolidação proporcional nas empresas que atuam no mercado brasileiro (Master’s Thesis, Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo, São Paulo). Retrieved from http://www.teses.usp.br/teses/disponiveis/12/12136/tde-05102006-174105/pt-br.php.
http://www.teses.usp.br/teses/disponivei...
), Lourenço and Curto (2010Lourenço, I. C., & Curto, J. D. (2010). Determinants of the accounting choice between alternative reporting methods for interests in jointly controlled entities. European Accounting Review , 19(4), 739-773.). |
