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IAS 28 – Application of the equity method (new)

Date recorded:

In March 2011, the Committee received a request to correct an inconsistency between paragraphs 2 and 11 of IAS 28 Investments in Associates and IAS 1 Presentation of Financial Statements that arose from consequential amendments to IAS 28 when IAS 1 was revised in 2007.

Paragraph 2 of IAS 28 indicates that all changes in the net assets of an investee should be recognised by the investor. However, paragraph 11 only addresses the accounting of the investor's share of profit or loss, distributions and other comprehensive income but does not address the accounting for other changes in the investee's net asset when the investor applies the equity method. The staff note that examples of situations of other changes in the investee's net asset can include 1) movements in other reserves of the associate (e.g., share-based payment reserves), 2) gains and losses arising on an associate's transactions with non-controlling interest of its subsidiaries, and 3) liabilities recognised in respect of put options to non-controlling interests.

The staff recommended that the Committee address the inconsistency through the annual improvements process and for other changes in net assets of an investee to be recognised within the investor's other comprehensive income.

The Committee members generally agreed that the issue needed to be addressed but several Committee members had concerns over both addressing through the annual improvements process and the staff's recommendation to recognise those changes in the investor's other comprehensive income. Several Committee members felt the scope of the issue would require a reconsideration of equity method accounting more broadly and would not qualify for either an interpretation or the annual improvements process. They also disagreed with recognising all other changes in other comprehensive income. Some Committee members felt that each change would need to be assessed individually while some Committee members felt that if there were to be a 'catch-all' category it should be profit or loss rather than recognising more items in other comprehensive income.

The Committee concluded that it could not address the issue through either the annual improvements process or through issuance of an interpretation as this would require a significant change to the standard. The Committee requested the staff to perform additional analysis of whether to recommend that the Board address this issue in isolation or in combination with other equity method related practice issues.

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