IAS 27 Amendments - Equity Method in Separate Financial Statements

Project History

In its 2011 Agenda Consultation, the IASB received requests to reinstate an option, which was removed in 2003, that allowed an entity to report investments in subsidiaries or associates using the equity method (or cost or fair value) in its separate financial statements. This option had been removed as part of the IASB's improvements project to reduce the number of accounting policy options available. 

The IASB concluded that there was strong support from many interested parties to allow the use of the equity method in separate financial statements to account for investments in subsidiaries, joint ventures and associates.  

In May 2012, the IASB decided to add to its agenda a narrow-scope project to restore the option to use the equity method of accounting in separate financial statements. One year later, the IASB tentatively decided to propose an amendment to IAS 27 to allow an entity to account for its investments in subsidiaries, associates and joint ventures using the equity method in its separate financial statements.   

On 2 December 2013, the IASB published for public comment Exposure Draft ED/2013/10 Equity Method in Separate Financial Statements (Proposed amendments to IAS 27). The proposed amendments to IAS 27 would allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. 

EFRAG's Comment Letter

On 9 January 2014, EFRAG published its draft comment letter in response to the ED.   

On 11 February 2014, EFRAG published its final comment letter. In the comment letter, EFRAG acknowledged that the equity method could provide information that was relevant to users of separate financial statements. Therefore, EFRAG was not against the IASB's proposal to allow entities to the use the equity method in their separate financial statements. However, EFRAG thought that the IASB had not sufficiently clearly articulated the reasons for re-introducing the equity method in the separate financial statements; whether it was to increase relevance of separate financial statements, reduce costs of preparation or ease the adoption of IFRS in certain jurisdictions. 

EFRAG also believed that the IASB should take the opportunity to better clarify the objective of separate financial statements, even though this should be considered more comprehensively in the future as part of the IASB's research activities.  

EFRAG's Endorsement Advice 

In August 2014, the IASB issued Equity Method in Separate Financial Statements - Amendments to IAS 27 (the 'Amendments').  

On 23 October 2014, EFRAG issued an Invitation to Comment relating to the endorsement of the Amendments for use in the European Union and European Economic Area. Its aim was to consult both on its assessment of the Standard against the technical criteria for the endorsement in the EU and on its initial assessment of the costs and benefits that would arise from the implementation and application of the Amendments in the EU. EFRAG's initial assessment was that the Amendments satisfied the technical criteria for EU endorsement and EFRAG therefore recommended its endorsement.

On 19 December 2014, EFRAG issued its Endorsement Advice and Effects Study Report relating to the Amendments to IAS 27 for use in the European Union and European Economic Area. EFRAG supported the adoption of the Amendments and recommended its endorsement. EFRAG's recommendation is explained in the letter to the European Commission, and the accompanying Basis for Conclusions and the Effects Study Report on the costs and benefits of implementing the Amendments.