Equity method of accounting

Background

Constituent feedback in the IASB' Agenda consultation 2011 revealed a level of criticism of the equity method of accounting.

Concerns raised by constituents include:

  • whether the information provided by the equity method is useful to users
  • complexities and inconsistencies with other IFRS requirements, e.g. goodwill impairment, share-based payments and joint arrangements.

IAS 28 Investments in Associates and Joint Ventures (2011) defines the equity method as follows:

The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets.  The investor's profit or loss includes its share of the investee's profit or loss and the investor's other comprehensive income includes its share of the investee's other comprehensive income.

This research project is designed to undertake a fundamental assessment of the equity method of accounting in terms of usefulness to investors and difficulties for preparers.

 

Current status of the project

In December 2012, as part of its response to the Agenda consultation 2011, the IASB formally added this project to its work programme as an IASB-only research project.  Board discussions are expected in the fourth quarter of 2014 and first half of 2015.

 

Project milestones

DateDevelopmentComments
December 2012 Added to the IASB work programme as a research project

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