EFRAG: Draft comment letter on the equity method - share of net asset changes

21 December 2012

EFRAG has issued its draft comment letter on the IASB's Exposure Draft ED/2012/3, 'Equity Method: Share of Net Asset Changes'. Comments on the letter are invited by 28 January, 2013.

In November 2012, the IASB issued Exposure Draft ED/2012/3 'Equity Method: Share of Other Net Asset Changes'.

In its draft comment letter on the IASB’s Exposure Draft ED/2012/3 'Equity Method: Share of Net Asset Changes', EFRAG agrees that diversity in practice exists on how investors should recognise their share of the changes in the net assets of an investee that are not recognised in profit or loss or other comprehensive income of the investee, and are not distributions received (‘other net asset changes’).

EFRAG members have three different views on the accounting for other net asset changes by an investor, which can be summarised as follows:

• View 1: Agree that other net asset changes are recognised in equity and reclassified to profit or loss when the investor discontinues the use of the equity method (the IASB’s proposal).
• View 2: The investor should only recognise changes in the investee’s net assets that arise from profit or loss, other comprehensive income and distributions received. Under this view, reclassification would not be necessary.
• View 3: The investor should account for the investee’s other net asset changes that result in indirect decreases and increases in the investor’s ownership interest in the same way as actual disposals and acquisitions of interest in the investee. Under this view, reclassification would not be necessary.

Press release

Draft comment letter

© EFRAG - European Financial Reporting Advisory Group