17 November 2015

EFRAG: Feedback statement to IFRS 10 and IAS 28

In its draft comment letter, EFRAG agreed with the IASB’s proposal to defer indefinitely the effective date of the 2014 Amendments. EFRAG considered that this deferral would give the IASB the opportunity to address the application problems arising from the equity method d in a comprehensive way and in a single project. It would also give the IASB the opportunity to reconsider the issues and challenges identified by EFRAG during its consultative phase. Finally, EFRAG considered that the deferral would also reduce the risk of requiring successive rounds of changes to IAS 28 in a short period of time.

Three respondents agreed with the postponement of the amendments and the IASB clarifying the underlying rationale of the equity method and how it should be applied in practice. In addition, one of these respondents advocated the postponement being limited in time and for having the IASB’s standard setting activity focused on the resolution of the practical issues. Two of these respondents disagreed with the IASB proposal to continue to permit early application. One respondent detailed that it was “meaningless to permit entities to anticipate what remains a virtual standard, not included in particular in any EU Endorsement” and there was no need for early application provisions as IAS 8’s requirements were adequate enough to help entities determine whether they should apply the proposed interpretation.

Two respondents did not agree with the IASB’s proposal to defer indefinitely the effective date of the 2014 Amendments. These respondents believed that the application of the 2014 Amendments would offer the benefits of increased clarity and the reduction of diversity in practice for the majority of transactions that are in the scope of the amendments.

EFRAG considered the views of those who opposed the deferral of the application date of the 2014 Amendments. EFRAG assessed that these views reflected a different assessment about the intrinsic quality of the 2014 Amendments. Although EFRAG remained supportive of the IASB’s efforts to address the diversity in practice, it reiterated the view that the IASB should look at the 2014 Amendments more comprehensively, together with other issues related to the equity method of accounting, before introducing additional narrow-scope changes to IAS 28. Therefore, EFRAG decided to continue to support the IASB’s proposal to defer the effective date.

EFRAG also considered the arguments of those who approved the deferral but opposed early application and decided to reflect in its letter opposition to early application remaining possible after the effective date of the 2014 Amendments has been postponed. This would ensure that the application of an unsatisfactory standard is as limited as practical.

Finally, EFRAG discussed whether it could support a time-limited postponement. However, EFRAG rejected this recommendation in favour of a restriction on early application because:

- in EFRAG’s view, the IASB’s research project on equity method of accounting should have a high priority and it should bring, in the near future, a solution to the outstanding issues.

- the ED is a positive response to EFRAG’s past requests that there should be no further amendments until the rationale for the equity method is resolved. 

Full press release

Feedback statement

© EFRAG - European Financial Reporting Advisory Group