International Accounting Standards Board
30 Cannon Street
LONDON EC4M 6XH
UNITED KINGDOM
11 January 2008
Dear Sir/Madam
Exposure Draft 9 ‘Joint Arrangements’
We welcome the opportunity to provide comment on the above Exposure Draft. As a group that operates
in the extractive industry the accounting treatment of our joint ventures is of paramount importance.
Jointly controlled operations are material contributors to the Group’s profit and balance sheet and it is
therefore critical that these are reflected in such a way so as to provide relevant (and sufficient)
information to our shareholders, analysts and other users of our accounts. We do not believe this aim will
be achieved following adoption of the proposed treatments outlined in this exposure draft. We believe
that the current standard, allowing proportionate consolidation, is more appropriate, providing more
relevant and useful information to the users of our financial statements.
Please find as follows, our response to the questions raised:
Question 1: Do you agree with the proposal to change the way in joint arrangements are
described?
We agree with the following aspects of the definition/terminology

The definition of joint control being revised to highlight control in order to obtain benefits (i.e. to be
consistent with the current definition of control)

The fulsome, upfront description of joint arrangements and the sub-sets thereof, clearly distinct
from the accounting treatment
Further, we understand the desire to move away from the legal form of an arrangement and therefore no
longer separately highlight jointly controlled entities, however in reality this seems somewhat redundant
as the subsequent explanations would nearly always result in a jointly controlled ‘entity’ being considered
a joint venture and therefore equity accounted (i.e. it seems the distinction is being made inadvertently).
We believe therefore that the current definitions and examples actually result in a focus on the form rather
than the substance of the arrangement.
We are also concerned by the definition of a joint arrangement which requires shared decisions by all
parties to the arrangement. There are certain circumstances in our industry which could result in two of
the joint venturers exercising joint control while other participants are not considered to share in that
control. Based on the current definitions it would appear that such arrangements would not meet the
definition of a ‘joint arrangement’ and therefore would not even be in scope of this standard, which would
assumedly lead to treatment as an associate, even though a level of involvement greater than significant
influence clearly exists.
Question 2: Do you agree that a party to a joint arrangement should recognise its contractual
rights and obligations relating to the arrangement? If so, do you think that the proposals in the
exposure draft are consistent with and meet this objective?
AND
Question 3: Do you agree that proportionate consolidation should be eliminated, bearing in mind
that a party would recognise assets, liabilities, income and expenses if it has contractual rights
and obligations relating to individual assets and liabilities of a joint arrangement?
We do not agree that this recognition approach is most appropriate as it has the effect of treating certain
arrangements which are jointly controlled consistently with those over which an entity only exercises
significant influence and in doing so would seem to suggest that the investment held is no better than that
of an associate (albeit that you will separately distinguish the two types of investments on the balance
sheet).
This could result in situations, particular in the extractive activities industry, whereby a jointly controlled
entity is treated as a joint operation or asset in the development phase (while cash is provided by the
‘venturers’ to fund development and banks/major contractors requiring full recourse to the venturers in
respect of any funding/payables), but once the operation moves into production (and is self funding with
banks etc no longer requiring recourse) it would be considered a joint venture and de-consolidated and
thereafter equity accounted. It would seem inappropriate that the accounting treatment would be
governed purely by the passage of time when the substance of the joint arrangement remained
unchanged.
Adoption of equity accounting for these operations will be inconsistent with our management reporting
(and the way in which management view our business and make strategic and operating decisions).
From more recent accounting standard releases (for example, IFRS 7 and IFRS 8) we had understood
that the IASB’s focus was on aligning the information management use (to monitor their business and
make resource allocation decisions) to that supplied to users. This exposure draft will not achieve this
goal. It would seem that in complying with IFRS 8 we will be reporting segment measures based on
management information (which will proportionately consolidate these interests) and then reversing this
impact to reconcile with the income statement.
We are also concerned that the ability to have both a joint asset and a joint venture will not only create
complicated accounting outcomes and therefore less transparency for the users of our financial
statements (i.e. consolidating certain assets and liabilities and then equity accounting what is left?), but
could actually drive the creation of more complicated structures in order to achieve a particular
accounting outcome, rather than reflecting the true substance of the arrangement as a whole.
In addition, this treatment doesn’t seem consistent with the conclusion (and therefore accounting)
currently provided for subsidiaries. Indeed in the introduction to this exposure draft IN8, includes the
statement:
“When a party has an interest in only a share of the outcome generated by the
activities of a group of assets or liabilities that it jointly controls, the only asset it
controls is its investment in the joint venture.”
Technically this statement is true of a subsidiary as well but notwithstanding we continue to consolidate
subsidiaries (which is clearly appropriate given the control exercised), we are therefore concerned with
the clear inconsistency in treatment in this regard.
Given that on a spectrum, joint control would fall between significant influence and control, we feel that
the use of proportionate consolidation of all jointly controlled arrangements is actually the most
appropriate accounting treatment as this reflects the fact that the entity isn’t controlled but is more than
significantly influenced.
We also believe that this provides better information to the users of the financial information, as it properly
reflects the income statement and balance sheet of the assets/entities that the Group controls (either
jointly or on its own) as compared with the limited information that an equity accounting treatment
provides.
If there was concern that such an accounting treatment would not make clear what proportion of assets,
liabilities, revenue & expenses was represented by joint arrangements we believe this could be overcome
by providing enhanced disclosure such that this information was disclosed on a summarised basis, by
way of a note to the financial statements.
Question 3: Do you agree that proportionate consolidation should be eliminated, bearing in mind
that a party would recognise assets, liabilities, income and expenses if it has contractual rights
and obligations relating to individual assets and liabilities of a joint arrangement?
No, we do not believe that the removal of proportionate consolidation is appropriate, as per outlined in our
response to Question 2.
Question 4: Do you agree with the disclosures proposed for this draft IFRS?
While information on assets, liabilities, revenue and expense contributed to the Group result is relevant
information we believe that the requirement to provide this on a individual basis for material joint ventures
is excessive. There is no similar requirement to provide such information for material subsidiaries or
associates.
It would seem that if this level of disclosure is felt to be necessary then the accounting in the primary
statements is in some way deficient (or not sufficient to meet user needs) and therefore may suggest the
need to reconsider the proposed accounting.
If the final standard continued to require that such investments are included on an equity accounted
basis, we could understand possible disclosure by segment as a method of disaggregation, but we do not
agree with the current proposal to provide such financial information on an individual venture basis.
Question 5: Do you agree with the proposal to restore to IAS 27 and IAS 28 the requirements to
disclose a list and description of significant subsidiaries and associates?
Yes, we believe this to be information relevant to the users of the financial statements. In the UK this
information is already provided within the financial statements as required by Company Law.
Question 6: Do you agree that it is more useful to users if an entity discloses current and noncurrent assets and liabilities of associates than it is if the entity discloses total assets and
liabilities?
We do believe that this is useful information for users of financial information.
In addition, to the responses to the above questions, we also wanted to raise our concern with the
proposal to cease accounting for a profit contribution once the venture is deemed to be held for sale.
While I appreciate that this is the treatment for equity accounting of associates, we do feel that again, a
distinction should be drawn between significant influence compared with joint control and that while an
entity is jointly controlled take up of our share of its profit (either on a line-by-line or single line basis)
continues to be most appropriate (rather than reflecting an investment only).
We would ask that the IASB consider holding an extractive industry workgroup to properly assess this
matter (using examples that exist, and are common, in practice). It has been long acknowledged that the
industry has very particular arrangements and issues which require specific consideration from an
accounting perspective - US GAAP seems to have gone some way to acknowledge this when they issued
EITF 00-1 (allowing entities in the extractive industry among others to apply proportionate consolidation to
certain unincorporated joint ventures). We do not consider that it would appropriate to overlook this fact
now and conclude on accounting which won’t reflect the commercial substance of transactions in our
industry and would be likely to result in presentation of non-GAAP measures in the financial statements in
order to meet the needs of our users.
Yours sincerely
Rebecca Charlton
Technical & Special Projects Manager
cc: Juliet Wall, Head of Financial Reporting & Planning