IAS 28 Investments in Associates and Joint Ventures; IFRS 9 Financial Instruments — Measurement of interests in associates and joint ventures that, in substance, form part of the net investment — Agenda paper 4

Date recorded:


In September and November 2015, and in May 2016 the Interpretations Committee discussed an issue relating to the interaction between IFRS 9 and IAS 28. The issue centres on the circumstances when an entity has a long-term interest in a joint venture or an associate that, in substance, is part of the ‘net investment’ in the joint venture or associate, but to which the equity method is not applied.  IAS 28 states it is this net investment that is assessed for impairment, applying IAS 36 Impairment of Assets.  IFRS 9 states that it does not apply to interests in associates and joint ventures that are accounted for using the equity method.  Does the entity apply IFRS 9 or IAS 28, and IAS 36, or a combination of both?

The Interpretations Committee concluded that the scope exemption in IFRS 9 regarding interests in associates and joint ventures is not clear. The Committee considered that an amendment to IFRS 9 and IAS 28 is required to clarify the issue. The amendments will be issued as a draft interpretation and accordingly, do not propose to change existing requirements.  The draft Interpretations will clarify that:

  1. an entity accounts for long-term interests applying IFRS 9, including the impairment requirements in IFRS 9;
  2. in allocating any losses of the investment applying the requirements in paragraph 38 of IAS 28, the entity includes the carrying amount of those long-term interests (determined applying IFRS 9) as part of the net investment to which the losses are allocated;
  3. the entity then assesses the impairment the net investment by applying the requirements of paragraphs 40 and 41A-43 of IAS 28; and
  4. if an entity allocates losses or recognises an impairment from applying steps (b) or (c), it ignores those losses or that impairment when it accounts for long-term interest applying IFRS 9 in subsequent periods.

The purpose of this session was to discuss the staff analysis and recommendation on presentation and disclosure requirements; the inclusion of an illustrative example; the transition requirements; and the effective date. The staff also intended to seek permission to ballot the draft Interpretation (subject to the discussion not raising significant concerns).

Staff analysis and recommendations

Presentation and disclosure

The staff noted that the draft interpretation will address the accounting for long-term interests in general and will clarify that long-term interests are part of a net investment that is subject to the impairment requirements in IAS 28. The staff noted that IAS 1 requires an entity to present a separate line item in the statement of financial position related to investments accounted for using the equity method. The staff believed that long-term interests are not part of this category and accordingly long-term interests should be presented separately. The staff recommended that the amendments should clarify that an entity allocates impairment losses recognised on the net investment between the investment accounted for using the equity method and long-term interests.  The staff also noted that there are existing Standards that already include disclosure requirements for investments that include long-term interests such as paragraph 20 of IFRS 12; paragraphs 8f), 35h), 8a) and 21 of IFRS 7; and paragraph 18 of IAS 24. Consequently, they do not recommend proposing further disclosure requirements for long-term investments.

Illustrative example

The staff indicated that the illustrative example discussed in May 2016 had been revised (see Appendix A of this agenda paper).

Transition requirements

The staff believed that requiring retrospective application would be feasible because entities already have the information to implement the proposal. Nevertheless, the staff considered that providing transition relief would be also necessary because some entities will not have applied all or some of the requirements of IFRS 9 (or IAS 39) to long-term interests before applying the Interpretation.

The staff recommended that the draft Interpretation should require retrospective application but not require restatement of comparative information, unless an entity chooses to restate comparative information on initial application of IFRS 9. The staff also recommended the same transition requirements for entities that issue insurance contracts (the recently issued draft ED Applying IFRS 9 with IFRS 4 proposed to introduce an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is within the scope of IFRS 4). The staff also recommended providing first-time adopters transition relief from presenting comparative information, unless the first-time adopter chooses to restate the comparative information relating to IFRS 9 on initial adoption of the Standard. This is because IFRS 1 provides relief for first-time adopters from presenting comparative information that complies with IFRS 9.

Effective date

The staff considered that it is important that the Interpretation has the same effective date as IFRS 9, which is 1 January 2018. The staff considered that entities will have sufficient information to comply with the Interpretation because IFRS 9 requires on initial application the re-measurement of long-term interests. Also, the staff considers that the Interpretation will not interfere with the initial application of IFRS 9 as IAS 28 paragraph 39 already requires entities to keep track of the amount of losses when applying the equity method.  The staff did not propose to include the option for earlier application given that there will be a short period between the issuance of the Interpretation and its effective date.


The Interpretations Committee approved the staff recommendations. The staff will prepare a ballot draft of the proposed Interpretation for public comment.

The discussion centred on 1) whether there was double-counting by subjecting the long-term interest to the IFRS 9 impairment requirements and then combining this post-impairment long-term interest with the equity-method investment for impairment assessment under IAS 36 as required by IAS 28; and 2) whether additional disclosures should be required for impairments allocated to long-term interests.  

On the double-counting front, the Staff and most of the committee members, reiterated their points made in previous meetings that there was no double counting because the items subject to impairment represented two different units of account. The staff clarified that in their proposal there is step one to measure the long term interest at fair value (following IFRS 9) and then a step which requires the entity to allocate the losses of the associate to the long term interest. The staff noted that the second step was not an impairment, instead it was the absorption of any loss incurred by the associate. Furthermore, the staff noted that it would be rare to allocate any IAS 36 impairment loss to the long-term interest as IFRS 9’s expected credit loss model would already have reduced the amortised cost of the long-term interest (as compared to IAS 39) for inclusion in the subsequent IAS 36 impairment, and secondly, the carrying amount of the equity-method investments must have been reduced to nil before any further losses are allocated to the long-term interest. The Staff agreed with the Interpretations Committee that it would be important to articulate clearly in the basis for conclusions why this was not double-counting to pre-empt public reaction. In this regard, the Interpretations Committee supported including the revised illustrative example to explain the thought process and various IC members suggested requiring additional disclosures in order to help users understand the financial impact of the application of IFRS 9 and IAS 28 on the long-term interest account.

However, on the disclosure front, some committee members and the Staff cautioned against the suggestion to request additional disclosures because IFRS 7, IFRS 12 and IAS 36 already have detailed disclosure requirements for IFRS 9 and IAS 28 respectively. Furthermore, they believed that adding specified disclosures requirements would detract users from applying the principle-based approach of IFRSs; and it would encourage preparers to disregard the overall objective of IFRS 12 to disclose information regarding the nature of an entity’s interests in other entities and the related financial impact in favour of including only the specified disclosure requirements. Nevertheless, other IC members remained concerned that without further specific disclosures users would be lost as to what happened to the long-term interest account and what the amount means.

During the meeting there were some concerns noted in relation to the lack of clarity of the illustrative examples included in the proposal. The staff clarified that the example did not include a situation in which there was an impairment under IFRS 9 and then an impairment under IAS 28 in the same period. The example reflected the allocation of an impairment under IFRS 9 and the allocation of a loss by applying the equity method under IAS 28. The Interpretation Committee members agreed to maintain the proposed illustrative example.

No major issues were raised regarding the transition provisions, transition for first-time adopters or the proposed effective date. During the discussion it was agreed to subject the staff proposal in this matter for comment from the public as part of the ED.

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