This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

IASB publishes proposals for limited amendments to equity accounting

  • IASB (International Accounting Standards Board) Image

Nov 22, 2012

The IASB has released exposure draft (ED) ED/2012/3, "Equity Method: Share of Other Net Asset Changes," which proposes limited scope amendments to IAS 28 to include guidance on how an investor accounts for its share of the changes in net assets of an associate or joint venture that are not recognized in profit or loss or other comprehensive income of the investee ("other net asset changes").

The issue of how an investor should account for other net asset changes arose from consequential amendments to IAS 28, Investments in Associates, made in 2007, which removed explicit guidance previously in that standard. The issue was initially considered by the IFRS Interpretations Committee, who recommended the IASB make a limited scope amendment to IAS 28, Investments in Associates and Joint Ventures (2011). IAS 28 (2011) carries over the core equity method requirements from the earlier version of IAS 28 and is effective from January 1, 2013, meaning the previous version could not be amended before it is superseded.

The proposals in ED/2012/3 would require an investor to recognize in its own equity its share of the changes in the net assets of the investee that are not recognized in profit or loss or other comprehensive income of the investee or that are not distributions received.

Examples of transactions of an associate or joint venture that may result in other net assets changes include:

  • Issues of additional share capital to parties other than the investor.
  • Buy-backs of equity instruments from shareholders other than the investor.
  • Writing of a put option over the investee's own equity instruments to other shareholders.
  • Purchase or sale of noncontrolling interests in the investee's subsidiaries.
  • Equity-settled share-based payments.

The calculation of the amount recognized in equity may also reflect the change (if any) in the investor's ownership interest caused by the transaction giving rise to the other net asset change, e.g., a reduction in ownership interest because of the issue of shares by an associate to other shareholders.

    The proposed approach would effectively reinstate the requirements of IAS 28 before the 2007 amendments and, as such, is a short-term solution to address diversity in practice until such time as the IASB gives broader consideration to the equity method of accounting.

    An effective date for the amendments will be announced after exposure.

    The ED contains an alternative view by board members who believe that the amendment is inconsistent with concepts of other IFRSs (IAS 1, IFRS 10) and would cause serious conceptual confusion. This board member is of the opinion that this short-term solution would not improve financial reporting but would instead undermine a basic concept of consolidated financial statements.

    The ED is open for a comment period of 120 days and closes on March 22, 2013.

    Click for:

    Correction list for hyphenation

    These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.