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EFRAG fears breach of IAS 1 principle

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

28 Mar 2014

The European Financial Reporting Advisory Group (EFRAG) has written to the IASB to express serious concerns about the forthcoming amendments to IAS 28 'Investments in Associates and Joint Ventures' in relation to other net asset changes when applying the equity method of accounting.

EFRAG states that the envisaged amendments would conflict with the fundamental IAS 1 principle that only transactions with equity holders impact equity directly. Moreover, economically similar transactions (direct and indirect acquisitions and disposals) would be accounted for differently. And lastly, EFRAG claims that the amendments would lead to a deferred recognition of losses as reductions in the carrying value of an investee due to dilution would only be recognised in profit or loss when the equity method is no longer applied. EFRAG also points out that the amendments would require modifying the prevailing practice in Europe.

In the letter, EFRAG mentions that the majority of respondents to the IASB's exposure draft ED/2012/3 Equity Method: Share of Other Net Asset Changes (Proposed amendments to IAS 28) did not support the proposals and that at the March 2014 meeting of the Accounting Standards Advisory Forum (ASAF), EFRAG and other ASAF members voiced concerns regarding the IASB's decision to continue with the proposals as exposed despite opposition from a significant majority of respondents to the due process.

The EFRAG letter contains an alternative accounting model largely based on the recommendations made by the IFRS Interpretations Committee to the IASB when the issue was separated out from the annual improvement process. This alternative approach does not have the problems described.

Please click for access to the following information on the EFRAG website:

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