Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

10 September 2014

EFRAG: Statement on the equity method


EFRAG has published a statement summarising comments responding to the Paper 'The Equity Method: a measurement basis or one-line consolidation?'

Responses to the paper showed a diversity of views, indicating that there is no common understanding of the purpose or use of the equity method.

There was limited consensus on whether the ideas explored in the paper could be used to clarify the equity method without a wholesale reassessment of its underlying role and some respondents specifically called for such a fundamental rethink. Other respondents thought that more clarity on underlying principles was needed, even if this would not be provided by explicitly identifying the equity method as either a one-line consolidation or a measurement basis.

Respondents believed that, when developing accounting requirements for investees that were jointly controlled or significantly influenced, the most important thing was providing relevant information to users of financial statements. It was not clear that any replacement for the equity method would provide sufficiently better information. In particular, the equity method was superior to cost because it provided earlier indication of the potential for dividend distribution and superior to fair value because of the potential for significant integration between the operations of investors and investees. The information provided by the equity method, including elimination of gains on transactions, was particularly relevant in such situations.

What was clear from respondents was that a view of the equity method as solely an entity perspective one-line consolidation was not appropriate given current conceptual thinking and developments in financial reporting. The implications of this would be that any future narrow scope amendments containing proposals analogous to those in ED/2012/3 Equity Method: Share of Other Net Asset Changes (proposed amendments to IAS 28) were not appropriate as they reflected a pure entity perspective one-line consolidation approach.

Press release

Feedback statement



© EFRAG - European Financial Reporting Advisory Group


< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment