Issue

The IFRIC considered various examples that raise the issue of whether the presumption in the Exposure Draft to improve IAS 28 Accounting for Investments in Associates that an investor has “significant influence” over the operations of an investee if it holds directly or indirectly through subsidiaries, 20 per cent or more of the voting power of the investee is met. The examples fell into two main categories:

(a) When the investor has a subsidiary that is less than wholly-owned, and the subsidiary holds 20 per cent of the voting power of the investee; and

(b) When the investor holds 20 per cent or more of the voting power of the investee through associates or joint ventures (rather than subsidiaries).

Decision not to add

April 2003

Reason

The IFRIC agreed that in the examples that fell under:

(a)  the presumption was met.

(b) in one case, the conclusion that equity accounting would be applied was based on the mechanics of equity accounting rather than using the 20 per cent presumption, and in another case, it was unclear as to whether the presumption was met.

The IFRIC agreed to pass this issue to the Improvements project to clarify the wording in IAS 28.   Paragraph 6 of the revised IAS 28 was revised to address this issue (paragraph 4 of the exposure draft).

References

Improvements Exposure Draft IAS 28 paragraph 4:

“If an investor holds, directly or indirectly through subsidiaries, 20 per cent or more of the voting power of the investee, it is presumed that the investor has significant influence....” [emphasis added]

Improvements Standard IAS 28 paragraph 6:

“If an investor holds, directly or indirectly (eg through subsidiaries),...

IFRIC reference: IAS 28