IAS 28 — Equity method: Share of other net assets

Date recorded:

The Project manager introduced the paper. In November 2012, the IASB published for comment the Exposure Draft Equity Method: Share of Other Net Asset Changes (proposed amendments to IAS 28 Investments in Associates and Joint Ventures). The proposed amendments intend to specify that:

  1. an investor should recognise, in the investor’s equity, its share of the changes in the net assets of the investee that are not recognised in profit or loss or other comprehensive income (OCI) of the investee, and that are not distributions received (‘other net asset changes’); and
  2. the investor shall reclassify to profit or loss the cumulative amount of equity that the investor had previously recognised when the investor discontinues the use of the equity method.

A considerable number of respondents disagreed with the IASB’s proposals, for various reasons, but there was no predominant view of how to account for such other net asset changes.

The current agenda paper presents three views of how an investor should account for its share of other net asset changes of the investee:

  1. View 1: investor’s profit or loss. This view is consistent with the Interpretations Committee’s second preference (and that was consistent with the Alternative View in the Exposure Draft).
  2. View 2: investor’s OCI, with the cumulative amount of OCI being reclassified to profit or loss when the investor discontinues the use of the equity method. This view is consistent with the staff proposal at the July 2013 Interpretations Committee meeting.
  3. View 3: investor’s profit or loss if the ownership interest in the investment is reduced, or at cost if the ownership interest in the investment increases. This view is consistent with the Interpretations Committee's original proposal and, therefore, excludes call option transactions entered into by an investee over its own equity (such as share-based payments) from the scope.

The paper also includes examples for each view.

The staff recommendation is that (1) an investor should recognise, in the investor’s OCI, its share of the other net asset changes of the investee (View 2); and (2) the investor shall reclassify to profit or loss the cumulative amount of OCI that the investor had previously recognised when the investor discontinues the use of the equity method.

There was a lively discussion where Board members expressed strong concerns about each view. Many Board members indicated they preference for the P&L approach as it is the best choice. Some Board members noted that there is inconsistency in the proposal that requires recycling OCI to P&L once the equity method is no longer used while for share based payment transaction the P&L impact take place once the option is exercised. Other Board members expressed that there is no unique approach that can capture all transactions.

After a vote, 6 Board members supported the P&L approach, 3 Board members supported the OCI approach and 11 Board members voted to bring back the ED for discussion at the next IASB meeting. It was concluded that it is necessary to ensure that there are no unintended consequences, and it was clarified that this is a narrow scope project to bring a short term solution.

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