IASB PUBLISHES EXPOSURE DRAFT EQUITY METHOD OF ACCOUNTING IAS 28


IASB PUBLISHES EXPOSURE DRAFT EQUITY METHOD OF ACCOUNTING IAS 28 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

STATUS

Exposure draft - Comments on the Exposure Draft were closed on 20 January 2025.

ACCOUNTING IMPACT

The Exposure Draft proposes a revision to IAS 28, which might significantly affect entities that apply the equity method. Entities with loss-making associates or joint ventures and entities with transactions with associates or joint ventures might be particularly affected due to the clarifications and measurement changes proposed by the Exposure Draft.

ENTITIES AFFECTED BY THE PROPOSED REQUIREMENTS

The proposals are expected to significantly affect entities that apply the equity method. Entities that have upstream or downstream transactions with associates or joint ventures would be particularly affected due to the proposed requirement to recognise full gains and losses from all upstream and downstream transactions. Currently there is lack of clarity on certain aspects related to recognition of investor’s or joint venturer’s share of losses, which the Exposure Draft proposes to address. As a result, entities with loss making associates or joint ventures might need to change the recognition of their share of losses depending on the accounting policy followed by them currently.

PROPOSALS RELATED TO INITIAL MEASUREMENT ON OBTAINING SIGNIFICANT INFLUENCE

IAS 28.10 requires an investment in an associate or a joint venture to be recognised at cost on initial recognition. However, IAS 28 does not currently specify how to measure the cost of the investment when obtaining significant influence. As a result, the following application questions arose, leading to diversity in practice:

► how an investor initially measures the carrying amount of an investment in an associate;
► if an investor with a previously held interest in an entity acquires an additional interest and obtains

significant influence, whether the initial measurement of the investment in an associate includes the original purchase cost of the previously held interest or the carrying amount of that interest applying IFRS 9 Financial Instruments; and

► whether an investor or joint venturer includes in the consideration transferred any contingent consideration, and if so, how the contingent consideration is measured.