The International Accounting Standards Board (IASB) has published an Exposure Draft (ED) on the Equity Method of Accounting Investments in Associates and Joint Ventures (revised 202x), addressing long-standing application issues in IAS 28. Released on September 19, 2024, the ED aims to improve disclosure requirements in IFRS 12 and IAS 27. The public comment period closed on January 20, 2025.
EFRAG’s Position
In its final comment letter, the European Financial Reporting Advisory Group (EFRAG) expressed support for several key proposals in the ED, including:
- Measurement of the cost of an investee.
- Transactions between an investor and its investees.
- Enhanced disclosures.
- Identification of impairment indicators.
However, EFRAG raised concerns and provided recommendations to the IASB, emphasizing the need for:
- Simplification: A streamlined approach for step acquisitions of an investee.
- Holistic Solutions: Principle-based methods for non-exchange changes in ownership interests.
- Exemptions: Excluding equity-accounted subsidiaries from the ED’s proposals for separate financial statements.
- Transition Clarity: Modifications and clarifications to proposed transition requirements.
Future Agenda Suggestions
EFRAG also recommended that the IASB undertake a fundamental review of the equity method as part of its upcoming agenda consultation to address broader application challenges.
The Exposure Draft marks a critical step toward resolving persistent issues in equity method accounting, with input from stakeholders like EFRAG shaping the future of financial reporting standards.