IASB publishes exposure draft on the equity method (IAS 28)

An exposure draft (available here) 

The amendments proposed by the Board in the exposure draft are primarily intended to address the application questions presented below, which we will return to in detail in a future issue, including the responses proposed by the IASB.  

Initial recognition  

• When an investor or joint venturer initially measures the cost of an associate or joint venture: 
  • should it include any previously held ownership interest in the cost?  
  • should it include any contingent consideration in the amount transferred, and if so, how should it measure that contingent consideration?  
• Should the investor or joint venturer include the deferred tax effects related to its share of the fair value of the associate’s or joint venture’s identifiable assets and liabilities? 

Changes in ownership interest  

• When an investor or joint venturer buys or sells an ownership interest, while retaining significant influence or joint control, how should it measure: 
  • the additional ownership interest?  
  • the ownership interest disposed of? 
• How should an investor or joint venturer account for other changes in ownership interests (e.g. if an associate issues new shares to a third party and the investor’s ownership interest decreases), and how should it recognise any gain or loss?

Share of profit or loss and other comprehensive income 

• If an investor or joint venturer has reduced the carrying amount of its investment to nil, should it: 
  • recognise any unrecognised losses as a ‘catch up’ adjustment when it purchases an additional ownership interest?  
  • recognise separately its share of profit or loss and its share of other comprehensive income?  

Transactions with associates or joint ventures  

• How should an investor or joint venturer recognise gains or losses resulting from the sale of a subsidiary to its associate or joint venture, in light of the rules set out in IFRS 10 and IAS 28? While IFRS 10 requires the entity to recognise the gain or loss resulting from the sale in full, IAS 28 requires a share of this gain or loss to be eliminated, to the extent of the entity’s interests in the associate or joint venture.  

Impairment and impairment indicators  

• Should a decline in the fair value of an investment in an associate or joint venture be taken as evidence of impairment?  
• Should an investor or joint venturer assess a decline in the fair value of the net investment by comparing the fair value to the initial purchase cost or to the carrying amount at the relevant closing date? 

Timetable  

The comment period runs until 20 January 2025. 

Following the consultation, the IASB will decide on the future direction of the project, depending on the feedback (and if relevant, will decide on the effective date of the proposed amendments).