IFRS 9 and IAS 28 — Accounting for long-term interests

Date recorded:


In September and November 2015, the Interpretations Committee discussed an issue relating to the interaction between IFRS 9 and IAS 28. Specifically, the issue relates to whether an entity applies IFRS 9, IAS 28 or a combination of both Standards in assessing and accounting for an impairment of the long-term interests in a joint venture or an associate that, in substance, form part of the ‘net investment’ in the joint venture or associate, but to which the equity method is applied.

The Interpretations Committee concluded that the scope exemption in IFRS 9 regarding interests in associates and joint ventures is not clear. Consequently, the Committee considered that an amendment to either IFRS 9 or IAS 28 may be required to clarify the issue. As the Committee did not reach a consensus on which alternative to propose as an amendment, the Committee decided to consult the Board about the scope exemption in IFRS 9. The Board agreed that the exemption did not apply to long-term interests as they were not accounted for using the equity method. Instead, the requirements in IFRS 9 were applied. The carrying amount resulting from IFRS 9 measurement should be included for allocating any losses of the associate or joint venture. The entity should then assess the net investment for impairment applying IAS 28 and IAS 36. Any allocated losses or IAS 28/IAS 36 impairment should be ignored for the IFRS 9 accounting in subsequent periods.

Subsequent to the Board discussion, the Committee discussed the issue in March and raised some further concerns, particularly with regard to the loss allocation. The concerns raised included double counting of losses when applying two Standards to one item, application of the expected credit loss model in IFRS 9 and how different types of interests are presented in an associate or joint venture.

The staff analysed that further research would be required to assess whether an amendment to IAS 28 would resolve the identified concerns, without creating new issues. Any consideration would need to be part of a research project and possibly linked to future research work regarding the equity method.

The staff therefore recommend following the previously recommended approach that had also been agreed to by the Board. They think the requirements in IFRS Standards provide an adequate basis to enable an entity to determine how to account for long-term interests in an associate or joint venture. Accordingly, it is not required to amend IFRS 9 or IAS 28 to answer the question raised in the submission. However, the staff concede that it might not be straight-forward to piece together how the requirements in IAS 28 and IFRS 9 interact with respect to long-term interests. Consequently, the staff recommend issuing an agenda decision that will provide clarity in this respect.

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