The IASB is seeking views on proposals to clarify and improve the equity method in its newly-published Exposure Draft (ED). This is a response to the number of queries raised with the IFRS Interpretations Committee on how to apply equity accounting and its interaction with other methods of accounting for interests in entities.

IAS 28 Investments in Associates and Joint Ventures sets out requirements for companies to apply the equity method when accounting for investments in associates and joint ventures. 

The IASB decided not to undertake a fundamental review of the equity method in developing the ED, partly because the method is well-established. The ED focuses instead on answering application questions, allowing the IASB to address implementation issues on a more timely basis. 

The application questions addressed by the ED relate to matters such as impairment indicators, recognition of a share of losses and transactions with associates. 

Additional requirements on contingent consideration are included, with the IASB proposing that any contingent consideration is measured at fair value. The ED contains more detailed requirements around changes in ownership interest, with separate sections proposed to address disposals and additional purchases.

Amendments to improve the understandability of the existing requirements of IAS 28 are also proposed, most notably the reordering of requirements along with updates to wording and subheadings. 

Designed to complement the proposed amendments to IAS 28, the ED proposes new disclosure requirements in IFRS 12Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements.

The IASB expects the proposed amendments will reduce diversity in practice and provide users of financial statements with more comparable and useful information.

The comment period to provide feedback ends on 20 January 2025. 

ICAEW’s Corporate Reporting Faculty will be responding to this consultation. Members are welcome to provide their views on the proposals by emailing crf@icaew.com.