ESMA comment letter on the equity method in separate financial statements

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21 Feb, 2014

The European Securities and Markets Authority (ESMA) has issued their 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.

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.

ESMA, consistent with the European Financial Reporting Advisory Group (EFRAG), comment that they would have “expected the IASB to provide more in-depth technical arguments supporting the re-introduction of the equity method as a measurement basis for subsidiaries, joint ventures and associates in the separate financial statements”.

ESMA also agrees with EFRAG that “introducing options in the standards does not constitute a positive development for IFRSs” and note that “options can lead to more diversity of reporting practices which impairs overall comparability between entities”.

Further comments and the full comment letter can be accessed from the ESMA website below. 

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