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EFRAG Short Discussion Series - The Equity Method: A measurement basis or one-line consolidation?


Project History

The EFRAG Short Discussion Series addresses topical and problematic issues with the aim of helping the IASB to address cross-cutting dilemmas in financial reporting and stimulating debate among European constituents and beyond.

The Equity Method: A measurement basis or one-line consolidation?

Over the years, the IFRS Interpretations Committee has received numerous requests to clarify various aspects of accounting under the equity method in IAS 28 Investments in Associates and Joint Ventures. The IASB has considered these requests by proposing narrow-scope amendments to IAS 28 with the aim of reducing diversity in practice.

When responding to two of the proposals to amend the equity method in IAS 28, EFRAG and other constituents expressed support for the IASB's efforts to address diversity, but expressed concerns that the proposals lacked a clear conceptual basis and were potentially inconsistent with each other. It was noted that IAS 28 contains elements of both consolidation techniques and a measurement basis; however, it is not always clear which of the two concepts should be applied to situations and issues that are not specifically addressed in IAS 28.

A better articulation and understanding of what the equity method aims to achieve is necessary to assist consistent application in practice, while avoiding the development of ad hoc narrow scope guidance. The latter would move IFRS away from a principles-based set of standards. Clarity about the principles underlying the equity method could affect the way the IASB further develops it in the future.

EFRAG wrote this paper to assist the IASB in its work and to stimulate debate in Europe and beyond.

EFRAG Feedback Statement

The comment period closed on 15 May 2014 and nine comment letters were received. On 10 September 2014 EFRAG published a feedback statement summarising the comments.

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