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IAS 27 — Equity method

Date recorded:

In May 2012, the IAS decided to develop proposals to amend IAS 27 to restore the option to use the equity method of accounting in separate financial statements (SFS) [in addition to the existing cost and FV options].

At the May 2013 meeting, The Staff presented a paper proposing to amend IAS 27 to allow entities to account for investments in subsidiaries, associates and joint ventures using the equity method in their SFS. The paper acknowledged that this amendment would impair comparability; nevertheless this information would provide users with useful information (comparing to the cost method).

During the May 2013 meeting, it was mentioned that this option was important for some countries. Also, jurisdictions can limit options available for SFS.  

Most Board members were supporting the proposals; however, there were a number of practical concerns. One Board member believed that bringing in the equity method to SFS would raise other questions, e.g. on how to account for deferred tax or how to determine goodwill on acquisition.

The comment from the Staff was that the equity method basically equated to consolidation procedures. Another Board member said that the equity method had been allowed in IFRS until recently and she was not aware of any practical issues.

Another Board member was concerned that the equity method option could apply to one category only (e.g. only to subsidiaries). Therefore, entities will be ‘picking and choosing’. The rest of the Board members did not seem to share the same concern.

One Board member believed that the scope of this issue went beyond regular amendments and that it should go to the Advisory Council first given the issue’s potential significance.

When put to a vote the majority of the Board members agreed with the Staff proposal. The amendment will not be done as part of the Annual Improvements process, but instead it will be an ‘independent’ amendment.

The same Board member who raised the issue about applying the equity method option to various categories of investments raised an additional issue: he believed that if one investment within the category (e.g. an associate) was accounted for using the equity method option in SFS then the entire category (i.e. all associates) should be measured using that option. Other Board members seemed to be in agreement with this.

The Board agreed with the Staff recommendation to amend IAS 27 to allow the equity method of accounting for investments in subsidiaries, associates and joint ventures in SFS.

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