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Deloitte comment letter on IASB ED/2012/3 - Equity Method: Share of Other Net Asset Changes

Published on: Mar 22, 2013

Deloitte's IFRS Global Office has submitted a letter of comment responding to the IASB's Exposure Draft Equity Method: Share of Other Net Asset Changes. While we welcome the initiative taken by the IASB to address the gap in the guidance on the application of the equity method of accounting, we do not agree with the proposed solution.

We recommend that any solution should be based on the current practice that is consistent with the approach tentatively agreed upon by the IFRS Interpretations Committee. The comment letter states:

[T]he proposed approach would result in a distortion of the investor’s equity and that current practice is, to a large extent, consistent with the approach tentatively agreed upon by the IFRS Interpretations Committee. The approach tentatively agreed upon by the IFRS Interpretations Committee reflects that indirect increases in ownership interest are substantially different from indirect decreases in ownership interest and that both should be accounted for in a manner consistent with a direct change in ownership interest. For these reasons, we recommend that the Board begin with these principles and supplement them with a clear approach to other types of equity transaction, particularly equity-settled share-based payment transactions and call options over an investee’s equity.

However, if the Board decides against this approach and needs a shorter-term solution, we favor recognition of the investor's share of equity transactions in the investor's profit or loss to recognition in the investor's equity for reasons stated in paragraph AV2 of the alternative view appended to the exposure draft.

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