ASCG comments on IASB ED/2024/7 Equity Method of Accounting

On 20 January 2025 the ASCG submitted its Comment letter on Exposure Draft ED/2024/7 Equity Method of Accounting – IAS 28 Investments in Associates and Joint Ventures (revised 202x) to the IASB.

Our overall assessment of the proposed amendments is that the IASB has unfortunately missed an opportunity to thoroughly examine the appropriateness and usefulness of the equity method. We think that offering separate and partially inconsistent answers to individual questions (which are certainly relevant in practice) does not justify the changes (and related costs of implementing the changes). We strongly believe that consistent decisions on the prevalent application issues require a preceding fundamental decision on the underlying interpretation of the equity method as a consolidation method or as a measurement method. Only a clear principle would allow to develop consistent answers to application questions on the equity method.

If the equity method were to be interpreted as a measurement method, it should be examined whether the equity method as a special form of accounting is still necessary. In this context, it should also be deliberated whether the existence of ‘significant influence’ justifies or requires a distinct status and differentiated accounting for more relevant information on these investments. In particular, the measurement of and accounting for financial assets in accordance with IFRS 9 offers a more stringent alternative and better informative value for users, as well as, on balance, being easier for preparers to apply. Thus, if the equity method were to be understood as a measurement method, we would favour using IFRS 9 instead.

In contrast, only if the equity method were to be understood as a consolidation method, we think that it would be necessary to clarify a wide range of individual issues. However, this could be facilitated by analogising the principles of IFRS 3.

In summary, we think that the IASB should explicitly ask constituents in its next agenda consultation whether the equity method should be retained and its conceptual guiding principle be clarified. In line with this, we think that it would be advisable to subject the further development of the current project to the feedback received.