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EFRAG final comment letter on the equity method in separate financial statements

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

13 Feb 2014

The European Financial Reporting Advisory Group (EFRAG) has issued their final comment letter on the International Accounting Standard Board’s (IASB’s) Exposure Draft ED/2013/10 'Equity Method in Separate Financial Statements (proposed amendments to IAS 27)' that was published on 2 December 2013. EFRAG supports the IASB's proposed amendments to IAS 27 'Separate Financial Statements' acknowledging that “the equity method may provide informative reporting of the investor’s net assets and profit or loss in its separate financial statements”.

ED/2013/10 proposes to change IAS 27 Separate Financial Statements to:

  • 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.

Whilst supporting the proposed amendments, EFRAG “believes that the IASB should better articulate the reasons for re-introducing the equity method in the separate financial statements”.  The comments of EFRAG are consistent with those expressed in the draft comment letter in January 2014.  The key comments of EFRAG are: 

  • Consequential amendment to IAS 28 Investments in Associates and Joint Ventures — EFRAG encourages the IASB to better explain why it is necessary in the Basis for Conclusions and “how it improves the quality of financial  reporting in the separate financial statements”.
  • Retrospective application — EFRAG thinks that "relief should be provided from full retrospective application to entities that opt to use the equity method to account for subsidiaries in their separate financial statements".
  • EFRAG believes that the IASB “should introduce a transitional relief for first-time adopters”.
  • Objective of separate financial statements — EFRAG would like the IASB to clarify the objective of separate financial statements in this project and in the future.
  • EFRAG encourages the IASB to clarify the accounting for how to account for an investment that changes status and where the entity has elected a different measurement option for each category of investments “to ensure consistent application in practice”.

The full comment letter can be accessed from the EFRAG website below. 

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