Cover paper (Agenda Paper 13)

The objective of the Equity Method project is to develop answers to application questions about the equity method, as set out in IAS 28, using the principles derived from IAS 28 where possible.

The purpose of this meeting was to ask the IASB to decide:

• Whether to propose improvements to the disclosure requirements for investments in joint ventures, and when a parent elects to use the equity method to account for its investments in subsidiaries in separate financial statements, the same as those it had previously tentatively decided to propose for investments in associates
• On transitional provisions to be proposed in the exposure draft

This paper was not discussed.

Towards an Exposure Draft— Possible improvements to disclosure requirements for investments in joint ventures and subsidiaries (Agenda Paper 13A)

At its September 2023 meeting, the IASB tentatively decided to propose disclosure requirements for investments in associates in relation to its tentative decisions on the Equity Method project to date.

The purpose of this meeting was to decide if those disclosure requirements should also be proposed for investments in joint ventures; and for investments in subsidiaries when a parent elects to use the equity method to account for its investments in subsidiaries in separate financial statements as permitted in IAS 27.

Staff recommendation

The staff recommended that the IASB proposes:

• Improvements to the disclosure requirements for investments in joint ventures the same as those it had previously tentatively decided to propose for investments in associates (Recommendation 1)
• That a parent, that elects to use the equity method to account for its investments in subsidiaries in separate financial statements, discloses the amount of gains or losses from transactions to its subsidiaries (Recommendation 2)

IASB discussion

All IASB members supported Recommendation 1 as associates and joint ventures are similar in nature and they would not expect much difference in terms of accessibility and costs of obtaining the relevant information from them. One IASB member also said that the disclosure requirements should be the same for them since the related accounting requirements are the same. One IASB member supported the staff’s view that an entity should assess the extent of disaggregation of the reconciliation disclosure requirements and that this should form part of the Basis for Conclusions.

Most IASB members supported Recommendation 2. However, many IASB members raised the concern that the gains or losses from transactions with associates should not only be limited to downstream transactions but should also include upstream transactions. A few IASB members mentioned that it was important to understand what information is useful to the users of the financial statements and the cost benefit analysis should be done on that basis. It was recommended by a few IASB members that the exposure draft should cover both upstream and downstream transactions to get views in terms of benefits and costs on both aspects (new Recommendation 3).

IASB decision

On Recommendation 1, all of the 13 IASB members present (one was absent) voted in favour of the staff recommendation.

On Recommendation 2, 10 of the 13 IASB members present (one was absent) voted in favour of the staff recommendation.

On Recommendation 3, only 5 of the 13 IASB members present (one was absent) voted in favour of the staff recommendation. The recommendation was therefore rejected.

Towards an Exposure Draft—Transitional provisions (Agenda Paper 13B)

At its April 2023 meeting, the IASB decided to move the Equity Method research project to its standard-setting work plan and work towards publishing an exposure draft as the next due process step.

The purpose of this meeting was to discuss the transitional provisions to be proposed in that exposure draft.

Staff recommendation

The staff recommended that the IASB proposes that an investor or a joint venturer:

• Retrospectively applies the requirement to be proposed that an investor or a joint venturer recognises the full gain or loss on all transactions with its associates or joint ventures (Recommendation 1)
• Recognises and measures contingent consideration at its fair value at the transition date. The investor or joint venturer recognises a corresponding adjustment, if any, to the carrying amount of its investments in associates or joint ventures (Recommendation 2)
• Prospectively applies all the other requirements to be proposed from the transition date (Recommendation 3)

IASB discussion

Most IASB members agreed with the staff recommendations.

On Recommendation 1, a few IASB members mentioned that a full retrospective approach might be costly and burdensome for preparers. One IASB member proposed introducing a modified retrospective approach and a few IASB members agreed with this, subject to understanding the details on how the modified retrospective approach would work. A few IASB members said that they would like to wait for comments received on the Exposure Draft to understand the issues that preparers might have on the full retrospective approach before proposing any changes.

On Recommendation 2, a few IASB members mentioned that they would like to see the definition of transition date clarified and that the staff should consider other circumstances as well such as for those companies that present more than one comparative period. A few IASB members also said that there should be some further consideration given to the contingent consideration requirements and if the impact of that should be in retained earnings instead of the investment carrying amount. It was also discussed that the change in the investment carrying amount might have an impact on the impairment assessment and that should be considered as well. Another IASB member said that a transition relief can be provided for the impairment analysis done in the prior periods.

IASB decision

On Recommendation 1, 12 of the 13 IASB members present (one was absent) voted in favour of the staff recommendation.

On Recommendation 2 and 3, all of the 13 IASB members present (one was absent) voted in favour of the staff recommendation.