DRSC revises standards for consolidated financial statements on joint ventures

The German Accounting Standards Committee (DRSC) has introduced new draft standards for German Accounting (DRS) concerning the accounting of associates and joint ventures within consolidated financial statements. These drafts, E-DRS 34 on associates and E-DRS 35 on joint ventures, update the previous DRS 8 and DRS 9.

The revised standards aim to clarify and harmonize the accounting practices for companies where a parent company holds significant influence (associates) and entities jointly controlled by multiple parties (joint ventures). The DRSC seeks to ensure consistent application of accounting principles in these challenging areas.

A key change in E-DRS 34 relates to the definition of significant influence. While a voting power of at least 20% is generally presumed to indicate significant influence, the DRSC clarifies that shares held by subsidiaries which are themselves not included in the consolidated financial statements due to control restrictions are not to be considered. The valuation of associates will continue to follow the equity method, with some reliefs granted regarding differing balance sheet dates and accounting methods.

E-DRS 35 introduces a notable change for joint ventures by requiring joint control to be based on a lasting contractual agreement. The standard clarifies that mere ownership stakes or aligned business interests are no longer sufficient to qualify an entity as a joint venture. The absence of a formal contract could therefore prevent a company from being classified as such.

These new draft standards provide answers and further explanations on detailed issues that have previously lacked case law and consistent interpretation in literature. The DRSC's comprehensive approach is seen as a welcome development for more uniform and transparent consolidated financial reporting in Germany.