Project History

In 2014, the IASB started a research project on the Equity Method of accounting. The objective of this research project was to understand the financial reporting issues that application of the equity method seeks to resolve by considering the circumstances in which the method is currently applied. The research project also involved a reassessment of the equity method in terms of its usefulness to investors and difficulties for preparers.

In 2016, after reviewing the research project’s progress and feedback on the 2015 Agenda Consultation, the IASB deferred the work on the Equity Method until the feedback from Post-implementation Reviews of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities is considered.

Following the feedback received from the PIR on the investors' information needs, the IASB restarted the project. In October 2020, the IASB reconsidered the scope of the project. Two alternatives were considered: (1) conducting a fundamental review of the equity method or (2) addressing the application questions only.

The IASB decided that its objective of the project is to:  

  • Assess whether application questions with the equity method, as set out in IAS 28, can be addressed in consolidated and individual financial statements by identifying and explaining principles in IAS 28.  

The Board decided that to achieve this objective, the project should be focused on:

  • identifying application problems and deciding which of these problems to address;

  • addressing these application problems by identifying and explaining the principles that underlie IAS 28. Identifying and explaining these principles may also help the Board develop new requirements, new application guidance or other amendments to the Standard.

In June 2021, the IASB Staff presented to the IASB a list of principles underlying the IAS 28 requirements. The IASB Staff also collected application issues/questions, and presented their short list, following the application of selection criteria.  

Regarding the selection criteria, in order to be further considered by the IASB, the application questions would need to be not-yet-solved, possible to solve without fundamentally rewriting IAS 28; possible to solve without amending other IFRS Standards; important - i.e., frequent, widespread, material - and affecting the consistent application of IAS 28. 

The selection criteria ameans that the IASB will not fundamentally reconsider the IAS 28 guidance and this may exclude some of the application issues from the scope of the Project.   

Previous EFRAG Work

In January 2014, EFRAG published The Equity Method: A One-line Consolidation or a Measurement Basis? which discussed various views on the conceptual underpinnings of the equity method. This EFRAG Discussion Paper is available here. The details of the feedback received from EFRAG constituents is available here. These papers were part of EFRAG's Short Discussion Series - the details of the project can be found here. 

The responses to the Discussion Paper indicated that there is no common understanding of the purpose or use of the equity method. However, there was a limited consensus on whether clarifying the Equity Method was possible without a wholesale reassessment of its underlying role. Nevertheless, some respondents called for a fundamental rethink and other respondents thought that more clarity on the underlying principles was needed.

From research project to a standard-setting work plan

In October 2022, the IASB reviewed the progress of its Equity Method research project and decided to retain the project's objective and approach. 

In April 2023, the IASB decided to move the Equity Method research project to its standard-setting work plan. Because of the project’s focus on answering application questions, rather than a fundamental review, the IASB decided to work towards publishing an exposure draft, rather than first publishing a discussion paper. At the same time, the objective of the project was updated to: develop answers to application questions about the equity method, as set out in IAS 28 Investments in Associates and Joint Ventures, using the principles derived from IAS 28 where possible. 

Following this decision, the IASB finalised its deliberations and tentative decisions and discussed sweep issues. 

The Exposure Draft is expected in September 2024 with a 120-day comment period.