EFRAG publishes its draft comment letter on the IASB ED Equity Method of Accounting

EFRAG has published its draft comment letter on the IASB Exposure Draft IASB/ED/2024/7 Equity Method of Accounting, IAS 28 Investments in Associates and Joint Ventures (revised 202x). Feedback to EFRAG’s DCL should be received by 6 January 2025.

The IASB ED proposes amendments to IAS 28 to address existing application questions related to the equity method of accounting. To complement the proposed amendments, the ED also proposes improvements to the disclosure requirements in IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements. The ED was published on 19 September 2024 and is open for comments until 20 January 2025.

EFRAG's draft comment letter (DCL) considers the ED's proposed amendments to be a positive step towards addressing existing application challenges, reducing diversity in practice in application of IAS 28 requirements, enhancing their understandability, and improving comparability. In particular, the DCL supports several of the ED's proposals including the measurement of cost of an associate or joint venture, treatment of gains or losses from transactions with an investee (associate or joint venture), disclosure requirements, and impairment indicators.

At the same time, the DCL points to several areas where further simplification, clarifications, and amendments are necessary. Specifically, there is need for simplification of the proposed layered approach to be applied when acquiring additional ownership interests while retaining significant influence. The DCL does not support the ED's proposals related to other changes in ownership interest and instead calls for a holistic, principle-based solution. It also calls for further clarification of the ED's proposals related to the recognition of losses when the carrying amount of the investment has been reduced to nil.

EFRAG has got mixed views on ED's proposals related to separate financial statements' treatment of investments in subsidiaries. The DCL seeks further feedback on this matter including on the alternative view expressed in the ED. It also notes the mixed views on proposed transition requirements related to the treatment of contingent consideration and previously unrecognised gains or losses from transactions with investees and seeks constituents' suggestions for alternative approaches.

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