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IAS 28 - Impairment of investments in associates in separate financial statements

Date recorded:

During its July 2012 meeting, the staff presented the Committee with a report on issues the Committee had referred to the IASB but had not yet been addressed. The Committee asked the staff to update the analysis and outreach on a number of issues including an issue regarding the impairment of investments in associates in separate financial statements which was originally discussed in 2009. The issue relates to whether, in its separate financial statements, an entity should apply the provisions of IAS 36 or IAS 39 to test its investments in subsidiaries, joint ventures and associates carried at cost for impairment.

The staff presented its outreach to the Committee. This analysis noted that investments not measured in accordance with IAS 39 (i.e., investments carried at cost) are precluded from applying IAS 39 and are clearly within the scope of IAS 36 given scoping considerations outlined in paragraphs 4 and 5 of IAS 36 and paragraph 2 of IAS 39.

The staff acknowledged paragraph BC66 of IAS 27 (2008) may be seen to explain the IASB’s intention that, in the separate financial statements of the investor, investments should be accounted for as financial instruments (i.e., either the cost method or fair value), and both models are detailed in IAS 39 as the applicable standard for financial instruments. As a result, some may be of the view that if an entity, its separate financial statements, accounts for its investments at cost, the entity should apply paragraph 66 of IAS 39 to calculate the amount of any impairment loss. However, the staff also noted that IFRS 9 deleted the exception contained in paragraph 66 of IAS 39 from fair value measurement for investments in equity instruments that do not have a quoted price in an active market and whose fair value cannot be reliably measured. Those equity investments, which had been required to be measured at cost less impairment, are now required to be measured at fair value.

As a result of this assessment, to remain consistent with the latest thinking of the Board (following the deletion of paragraph 66 of IAS 39 with the issuance of IFRS 9), the staff recommended that an entity should apply IAS 36 in testing investments accounted for at cost for impairment.

The staff also presented its outreach on this issue. The staff observed that this issue is not widespread and so did not expect there to be diversity in practice.

With little feedback, the Committee tentatively agreed with the staff’s analysis, absent editorial amendments to the tentative agenda decision to more clearly state that IAS 36 should be applied in testing investments accounted for at cost for impairment. The Committee noted that IAS 36 provides sufficient guidance to address the issue submitted, and consequently, tentatively decided not to add this issue to its agenda.

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