EFRAG published its final comment letter to the IASB on the IASB's ED/2013/3 'Equity Method: Share of Other Net Asset Changes'. EFRAG disagrees with the proposed amendments and believes the IASB should clarify the principles underlying the application of the equity method.
The proposed amendments to IAS 28 Investments in Associates and Joint Ventures would require an investor to:
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recognise directly in equity changes in the net assets of an investee accounted for under the equity method, that have not been recognised in profit or loss or Other Comprehensive Income of the investee, and that are not distributions received (‘other net asset changes’); and
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‘recycle’ to profit or loss such changes when it ceases to apply the equity method.
EFRAG agrees that diversity in practice exists on how an investor recognises its share of other net asset changes of an investee, and therefore supports the IASB’s efforts to address the issue.
However EFRAG believes that the approach proposed by the IASB would present certain transactions between an investee and third parties as if they were transactions with the investor’s owners. This would lead to an inconsistency with the presentation requirements in IAS 1 Presentation of Financial Statements, which requires an entity to present all non-owner changes in equity within comprehensive income. EFRAG believes that the current issues stem from a lack of clarity on the principles underlying the equity method. These principles should be clarified in order to address the accounting for the various types of transactions that could result in other net asset changes.
Furthermore, EFRAG believes that there is no conceptual basis to ‘recycle’ to profit or loss other net asset changes, especially given that the proposed amendments start from the premise that other net asset changes should be treated in the same way as transactions with owners.
In EFRAG´s view, a short-term solution should not should not create inconsistencies with existing IFRS or create a new form of ‘recyclable equity’. EFRAG therefore disagrees with the proposed amendments and believes the IASB should clarify the principles underlying the application of the equity method.
Press release
Final comment letter
© EFRAG - European Financial Reporting Advisory Group
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