CESR letter on IASB’s Exposure Draft on Joint arrangements

07 January 2008

CESR sent a letter to EFRAG on IASB’s exposure draft on ED 9 Joint arrangements stating that although the IASB’s decision to eliminate the method of proportionate consolidation for jointly controlled entities will advance towards convergence with US GAAP, it will not be a full convergence. The deletion in the name of convergence only does not justify the deletion.

 

In addition, IASB substantiates the deletion of the proportionate consolidation with the conclusion that the proportionate consolidation is in conflict with the framework.

 

The IASB should clarify the convergence taking place with this standard in more detail including where the new standard is not fully converged with US GAAP. Also, CESR sees the need for a justification for the arguments regarding the conflict between the framework and IAS 31.

 

The proportionate consolidation method is very common throughout Europe, especially in the sectors where US GAAP allows the use of the method. CESR encourages the IASB to identify the advantages and disadvantages for both the proportionate method and the equity method. The IASB should hereafter select the accounting treatment that results in the most useful information for investors or other users of financial statements.

 

Accordingly, we believe the IASB should better explain why it selected the equity method rather than the proportionate consolidation method when accounting for jointly controlled entities.

 

CESR letter

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