IASB proposes reinstating the equity method in seperate financial statements

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02 Dec, 2013

The International Accounting Standards Board (IASB) has published an Exposure Draft (ED) of proposed amendments to IAS 27. With the 2003 revision of IAS 27 'Consolidated and Separate Financial Statements' the equity method was removed as an accounting option for investments in subsidiaries and associates in an entity's separate financial statements and the decision was carried forward to IAS 27 'Separate Financial Statements' in 2011. Constituent feedback to the Agenda consultation 2011 led the IASB to reconsider the option and to publish ED/2013/10 'Equity Method in Separate Financial Statements (Amendments to IAS 27)' with the proposal to reinstate the option. Comments are requested by 3 February 2014.



In some jurisdictions, corporate law requires the use of the equity method in separate financial statements to measure investments in subsidiaries, joint ventures and associates. Accordingly, in jurisdictions that apply IFRSs and have the equity method requirement, two sets of financial statements need to be prepared to meet the requirements of both IAS 27 and local laws. Similarly, if a jurisdiction has not yet moved to IFRSs but has an equity method requirement, the preparation of two sets of financial statements would become necessary after IFRS transition. This might in some cases be regarded as a disincentive for adopting IFRSs.


Suggested changes

The IASB proposes to change IAS 27 Separate Financial Statements as follows:

  • permit the equity method as one of the options to account for an entity's investments in subsidiaries, joint ventures and associates in the entity's separate financial statements,
  • require applying the change retrospectively when an entity elects to change to the equity method.

If finalised, the proposals would allow investments in subsidiaries, joint ventures and associates to be measured at cost, in accordance with IAS 39 or IFRS 9, or using the equity method as described in IAS 28.

IFRS 1 First-time Adoption of International Financial Reporting Standards would be amended to note that IAS 27 permits an entity to choose the equity method in separate financial statements, but would not provide any special relief for first-time adopters who choose to do so.

The IASB also proposes amending IAS 28 Investments in Associates and Joint Ventures in order to avoid a conflict with the principles of IFRS 10 Consolidated Financial Statements in situations where an entity loses control of a subsidiary but retains an ownership interest that gives the entity significant influence or joint control, and the entity elects to use the equity method to account for the investments in its separate financial statements.


Transition requirements and effective date

An effective date for the amendments will be determined after the redeliberations of the IASB. The amendments would be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application would be permitted.


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