IAS 28 — Impairment of investments in associates

Date recorded:

In March 2009, the IFRIC received a request to address the potentially conflicting guidance in IAS 28 Investments in Associates, IAS 36 Impairment of Assets and IAS 39 Financial Instruments: Recognition and Measurement when performing an impairment test of investments in associates. The request noted different impairment models (IAS 36 vs IAS 39) are used for impairment testing of investments in associates in the consolidated financial statements vs the separate financial statements of the investor.

In the staff's opinion, given the different purposes of consolidated financial statements and separate financial statements (as detailed by the Board in BC66 of IAS 27), different impairment models (IAS 36 and IAS 39) are appropriate. Based on the explicit guidance provided in IAS 28 and other IFRSs, in the staff's opinion, IFRSs already provide relevant guidance and the staff does not expect divergent interpretations in practice. Therefore, the staff recommended that the IFRIC not add this issue to its agenda.

The IFRIC members were asked if they agreed with the staff recommendation. One IFRIC member did not agree. That member thought that the two amounts should be the same, and it would be difficult to explain to the market why they are different.

Another IFRIC member queried whether the cross-exemptions also apply in the separate financial statement for investments held at cost – or is it only if they are equity-accounted? The staff responded by saying that it is not clear.

An IFRIC member stated that you could argue that the IAS 39 exemptions apply whether the investment is held at cost or equity-accounted. Another thought it is clear the equity method investments are excluded from IAS 39, but it is not clear for those held at cost.

Another IFRIC member pointed out that IAS 39 permits the use of cost only when the entity is unable to get a reliable measurement. It does not incorporate cost and fair value as the staff are implying.

The staff also said that because different measurement models apply, it would also seem appropriate to use different impairment models.

Another IFRIC member disagreed with the staff analysis, stating that consolidation of subsidiaries is not the same as equity accounting. Equity accounting is a valuation method, not a consolidation, and this member disagrees with the analogy to consolidation.

The staff also noted that the requirements for separate financial statements are in IAS 27, not IAS 28. One IFRIC member said that this was debatable as IAS 28 does refer to separate financial statements (by referring you back into IAS 27).

Another IFRIC member thought the issue should be referred to the Board and dealt with via the annual improvements process. The IFRIC agreed to refer the issue to the Board.

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