Equity Method of Accounting
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We are seeking feedback on a proposal from the International Accounting Standards Board to amend and clarify the requirements of the ‘equity method’. These proposed amendments aim to address application challenges relating to the equity method and reduce diversity in practice. |
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About this consultation
The equity method is generally used to account for a reporting entity’s investments in its associates (i.e. entities over which the reporting entity has ‘significant influence’, but not control) and its joint ventures.
Requirements for applying the equity method are set out in IAS 28 Investments in Associates and Joint Ventures.
The IASB’s Exposure Draft Equity Method of Accounting proposes to amend, clarify and reorder certain requirements in IAS 28 relating to the equity method. These proposals aim to assist reporting entities in applying IAS 28, by addressing application challenges and improving the understandability of IAS 28. The IASB expects the proposed amendments to reduce diversity in practice and therefore provide users with more comparable information.
The Exposure Draft includes the following key proposals:
- Change in accounting for gains/losses arising from an entity’s transactions with its associates and joint ventures.
- Clarifications in areas where the existing IAS 28 requirements are vague or unclear.
Providing feedback
We are aware that in New Zealand, practical challenges have been arising when applying the equity method. We are interested in your feedback on the equity method of accounting, and the IASB Exposure Draft proposals including your perspective on:
- The potential benefits, as well as the potential cost impacts, of the IASB’s proposed changes.
- The challenges in applying the equity method in New Zealand, and what actions could be used to address these issues.
We appreciate both formal and informal comments, whether supportive or critical, as both supportive and critical comments are essential for us to reach a balanced view. We will put all written submissions on our website unless requested otherwise, and we reserve the right not to publish defamatory submissions.
Your feedback will inform our submission to the IASB, and our next steps.
How to provide feedback
XRB Submissions closed on 20 November 2024.
The Board's comment letter to the IASB can be viewed below.