Cover paper (Agenda Paper 13)

The objective of the Equity Method project is to develop answers to application questions about the equity method, as set out in IAS 28, using the principles derived from IAS 28 where possible.

The purpose of this meeting was to ask the IASB to decide whether its tentative decisions on application questions for investments in associates apply:

• When parents elect to use the equity method to investments in subsidiaries in their separate financial statements
• To investments in joint ventures

This paper was not discussed.

Towards an Exposure Draft— Implications of applying the IASB’s tentative decisions to investments in subsidiaries in separate financial statements (Agenda Paper 13A)

At its September 2023 meeting, the IASB discussed application of the equity method to investments in subsidiaries in separate financial statements and asked the staff to prepare a paper for decision-making.

The purpose of this paper was to:

• Consider the staff analysis that includes feedback from the Accounting Standards Advisory Forum (ASAF)
• Decide whether the IASB’s tentative decisions on application questions for investments in associates apply when parents elect to use the equity method to investments in subsidiaries in their separate financial statements

Staff recommendation

The staff recommended that the IASB applies its tentative decisions on application questions for investments in associates when parents elect to use the equity method to investments in subsidiaries in their separate financial statements.

IASB discussion

Most IASB members agreed with the staff recommendation. Many IASB members mentioned that they did not want to see two or more versions of the equity method. A few IASB members acknowledged that while the concern regarding the differences between separate and consolidated financial statements was valid, especially for companies making dividends based on profits, they still considered that they could not deliver on solving that issue because regulations in each jurisdiction might be different and that the issue could be addressed at the jurisdiction level through local GAAP or regulations. Many IASB members mentioned that amending IAS 27 was beyond the scope of this narrow-scope project. A few IASB members also mentioned that ASAF, which is multi-jurisdictional, supported the staff recommendation and that any major concerns or solutions would be brought forward through the response to the exposure draft.

One IASB member did not agree with the staff recommendation as he considered that subsidiaries were different from associates and joint ventures because of the control element. He also mentioned that the staff recommendation would create problems for countries that only have IFRS and no local GAAP, and those that use IFRS profits for tax and distributions. He thought it was important to understand the objective of the separate financial statements and that Alternative 2 proposed by the staff (i.e. apply the equity method as would be described in IAS 28, with a requirement to restrict gains or losses from transactions between the parent and its subsidiaries) would be a temporary solution to address this issue.

IASB decision

12 of the 13 IASB members present (one was absent) voted in favour of the staff recommendation.

Towards an Exposure Draft—Implications of applying the IASB’s tentative decisions to investments in joint ventures (Agenda Paper 13B)

At its September 2023 meeting, the IASB discussed application of the equity method to investments in joint ventures and asked the staff to prepare a paper for decision-making.

The purpose of this paper was to:

• Consider the staff analysis that includes feedback from ASAF
• Decide whether its tentative decisions on application questions for investments in associates apply to investments in joint ventures

Staff recommendation

The staff recommended that the IASB applies its tentative decisions on application questions for investments in associates to investments in joint venture.

IASB discussion

All IASB members supported the staff recommendation on the basis that it would not introduce two versions of equity method within IAS 28.

IASB decision

All IASB members present voted in favour of the staff recommendation.