What is required when preparing consolidated financial statements for joint ventures?

When preparing consolidated financial statements for joint ventures, the equity method is utilized for accounting. This approach is appropriate because a joint venture typically involves a contractual arrangement where two or more parties agree to share control over an economic activity. As a result, the joint venture operates in a manner distinct from a simple investment or full consolidation.

Under the equity method, the venturer recognizes their share of the joint venture’s profits or losses, which allows it to reflect the economic realities of its involvement. The investment is recorded at cost and subsequently adjusted for the investor's share of the joint venture's profits or losses, as well as for distributions received. This ensures that the financial statements provide a true and fair view of the venturer's performance and position concerning the joint venture.

Other approaches, such as incorporating results at cost or maintaining separate financial records for the joint venture, do not align with the necessary accounting practices for joint ventures under relevant financial reporting standards like IAS 28 (Investments in Associates and Joint Ventures). These standards require a clear reflection of the influence and economic contribution of such collaborative arrangements in the consolidated financial statements.