KASB publishes discussion paper on the equity method

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01 Jul 2014

The Korean Accounting Standards Board (KASB) has published a discussion paper with three alternative concepts regarding the equity method and other issues that the KASB believes should be addressed in connection with the IASB's equity method research project.

The paper discusses problems with the vagueness around the concept of the equity method. These are caused by the fact that the concept is not clearly presented in IAS 28 Investments in Associates and Joint Ventures as the standard remains vague on whether the equity method serves as one-line consolidation or measurement basis, which seem to be two unrelated concepts. In its discussion paper, the KASB introduces a new dimension called 'scope of group' (reflecting the relationship between an investor and its associate) to bring the concepts 'one-line consolidation' and 'measurement basis' onto one continuum. This allows the KASB to establish three concepts of the equity method, including a concept existing in the middle of the continuum. The paper offers a detailed analysis of the three alternative concepts and shows how accounting treatments and results may differ.

In its paper, the KASB also presents additional issues that should be considered in the equity method research project. Under its national GAAP Korea accumulated extensive experience in resolving equity method-related issues and believes this will provide valuable insights when amending IAS 28. Lastly, the paper also reports the results of a market-based empirical study on the value relevance of the equity method.

The discussion paper is available on the KASB website. Comments on the paper are requested by 31 August 2014.

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