Equity method of accounting
Project update and next steps (Agenda Paper 13)
The purpose of this paper is to update the Board on the equity method research project, specifically on:
- Identifying application questions
- Identifying and explaining principles of IAS 28
Identifying application questions
The staff have compiled from various sources 71 application questions for consideration. Based on the project scope decided by the Board in October 2020, the staff will assess each application question against the following five criteria:
- Is the application question unresolved (i.e. has it already been resolved by another Standard or an Agenda Decision)?
- Can the application question be solved without fundamentally rewriting IAS 28?
- Can the application question be solved without amending other IFRS Standards?
- Does the question affect the consistent application of IAS 28?
- Is the application question important? (i.e. how frequently is the question encountered, how widespread is the question, potential magnitude of the question)
If the question fails any of the first three criteria, then the question is removed from the list. Criteria 4 and 5 are then assessed together to decide whether to remove the question.
The staff are currently working through this process.
Identifying and explaining principles of IAS 28
The staff are currently mapping the requirements of the Standard. The focus is on principles that relate to how to apply the equity method of accounting, including initial recognition and measurement, subsequent measurement, and impairment losses.
At a future meeting, the staff will ask the Board to review the list of application questions and discuss the identified principles.
The staff will ask the Board at this meeting whether they have comments or questions on how the criteria for selecting the application questions are being applied.
