GAS 27 Proportionate Consolidation

• Adopted by the Accounting Standards Committee of Germany (ASCG) on 17 July 2018.
• Publication of the authoritative German version by the Federal Ministry of Justice and Consumer Protection under section 342(2) of the HGB on 16 October 2018.

This Standard expands on the requirements governing proportionate consolidation in accordance with section 310 of the HGB that address the inclusion of joint ventures in consolidated financial statements. It also specifies the criteria for the existence of a joint venture that are conditions for exercising the option to account for it using proportionate consolidation in accordance with section 310(1) of HGB. Additionally, the Standard expands on the application of the requirements governing consolidation, with the necessary modifications, in accordance with section 310(2) of the HGB.

This Standard applies to all entities that are required by section 290 of the HGB to prepare consolidated financial statements (see also GAS 19.7ff.). The Standard also applies to entities required by section 11 of the PublG to prepare consolidated financial statements. The same additionally applies to the voluntary preparation of consolidated financial statements.

The existence of a joint venture requires the definition of an entity to be satisfied. The legal form and registered office of the entity are not relevant for its classification as a joint venture.

The existence of a joint venture requires the parent entity or a subsidiary included in the consolidated financial statements to control another entity jointly with one or more venturers not included in the consolidated financial statements.

Joint control within the meaning of section 310(1) of the HGB requires the effective equal exercise of control of the financial and operating policies of the joint venture by the parent entity or a subsidiary included in the consolidated financial statements jointly with at least one venturer not included in the consolidated financial statements on the basis of a permanent contractual arrangement governing joint control by the venturers.

At least two venturers who are independent of each other must be invested in a joint venture. With regard to the investment relationships of the venturers, there is generally no minimum investment or any limit on the (maximum) number of venturers who can participate in the joint control of the joint venture.

Equal ownership interests of the venturers may be an indication of the existence of a joint venture, but are not a necessary condition for it.

Joint control of the joint venture does not have to be exercised by all of its venturers, provided that the venturers who do not exercise joint control do not prevent the other venturers from effectively controlling the financial and operating policies of the joint venture.

Joint ventures may be included in the consolidated financial statements in proportion to the interest in their equity held, directly or indirectly, by the parent entity. If this option is not exercised, they are included in the consolidated financial statements (subject to the requirements of section 311(2) of the HGB) as associates in accordance with section 312 of the HGB.

The requirements governing consolidation (sections 297 to 301, sections 303 to 306, 308, 308a and 309 of the HGB) are applied to proportionate consolidation, with the necessary modifications (section 310(2) of the HGB).

The starting point for applying proportionate consolidation is the annual financial statements or consolidated financial statements (local GAAP single-entity financial statements) of the joint venture.

If the accounting policies used to prepare the annual or consolidated financial statements of the joint venture differ from the uniform group accounting policies, the items recognised and their carrying amounts are adjusted to conform to the uniform group accounting policies (financial statements adjusted to conform to uniform group accounting policies).

The accounting for the joint venture in the consolidated financial statements, the consolidation of intercompany balances, the elimination of intragroup profits or losses, and the consolidation of income and expense shall generally be based on the group’s interest in the equity of the joint venture.

In the case of proportionate consolidation, the assets and liabilities, prepaid expenses and deferred income, special items, income and expenses, as well as the cash flows of the joint venture are generally also included in the consolidated financial statements in proportion to the group’s interest in the equity of the joint venture.

The Standard additionally specifies the determination and application of the group’s ownership interest for joint ventures with the legal form of a corporation and for joint ventures with the legal form of a partnership.

The offsetting of the parent entity’s interest in the joint venture against the proportionate revalued equity of the joint venture to be carried out in the course of the accounting for the joint venture in the consolidated financial statements is performed at the date when the entity became a joint venture. This is the date from which joint control is effectively exercised.

The specific characteristics of individual consolidation adjustments existing in this context are described in greater detail in the Standard.

If additional interests are acquired (increase) or sold (decrease) in a joint venture following the establishment of joint control without any change in the status of the entity as a joint venture, those transactions are accounted for as an acquisition or a disposal.

The Standard also addresses how a change in consolidation method is accounted for. This will always be necessary if an entity is classified as a joint venture for the first time due to a change in the ability to control or an entity ceases to have the status of a joint venture.

The minimum disclosures in the notes to the consolidated financial statements from application of this Standard are also specified.

The requirements of this Standard must be applied to the initial proportionate consolidation for the first time in financial years beginning after 31 December 2019. Irrespective of the timing of the initial proportionate consolidation, the requirements of this Standard apply for the first time to all changes in the method of accounting for joint ventures (eg measurement subsequent to initial consolidation, deconsolidation and changes in the consolidation method) in financial years beginning after 31 December 2019. Retrospective application is not permitted.

Earlier application is encouraged. In this case, all requirements of this