Changes on the horizon for equity accounting

On 19 September 2024, the International Accounting Standards Board (IASB) published its proposals to amend and clarify various aspects of equity accounting. These are contained in Exposure Draft Equity Method of Accounting - IAS 28 Investments in Associates and Joint Ventures (ED 333 in Australia). If approved, these are expected to significantly affect entities that apply the equity method.

IFRS® Accounting Standards require entities to use the equity method of accounting in consolidated financial statements to account for investments in associates and joint ventures (unless they are exempt). However, in separate financial statements, entities can choose to use the equity method if they do not want to measure these investments at cost or in accordance with IFRS 9 Financial Instruments (i.e. at fair value).

The following is a snapshot of the main proposals in the Exposure Draft.

INITIAL MEASUREMENT
  • Introduction of the definition of the cost of the associate or joint venture, which includes fair value of any previously held interest
  • Clarification on accounting for contingent consideration and deferred tax effects.
CHANGES IN OWNERSHIP INTEREST WHILE RETAINING SIGNIFICANT INFLUENCE
  • Purchase of additional ownership interest measured at fair value of consideration transferred
  • Partially disposed portion to be measured as a percentage of the carrying amount of the investment
  • Other increases or decreases in ownership interest to be accounted as purchase or disposal of ownership interest.
INVESTOR’S SHARE OF LOSSES
  • No catch-up of unrecognised losses on purchase of an additional ownership interest
  • Losses (profit or loss and OCI) exceeding net investment: first the share of profit or losses to be recognised and then the share of OCI
  • Losses subsequent to the reduction of net investment to nil: Separate recognition of the share of profit or loss and OCI with a nil net investment.
TRANSACTIONS WITH AN ASSOCIATE / JOINT VENTURE
  • Recognition in full of the gains and losses resulting from all ‘upstream’ and ‘downstream’ transactions (including sale of subsidiary) with its associates or joint venture.

 

Important

This is a change in measurement requirements.
OTHER PROPOSALS
  • Impairment - Clarifications on certain requirements
  • Additional disclosure requirements.

More information

You can read more about the IASB’s proposals to change equity accounting in our publication.

Comments close

The Exposure Draft is open for comment to the Australian Accounting Standards Board until 22 November 2024 and the IASB until 20 January 2025.