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FRC responds to IASB Exposure Draft Equity Method: Share of Other Net Asset Changes
Financial Reporting Council
Hans Hoogervorst Chairman IASB 30 Cannon Street London EC4M 6XH
24 January 2013
Dear Hans
IASB Exposure Draft Equity Method: Share of Other Net Asset Changes
I am writing on behalf of the Financial Reporting Council (FRC), in response to the above Exposure Draft (ED).
The FRC supports the proposal that an investor in an associate or joint venture should recognise its share of 'other net asset changes' in equity, but it considers that those amounts should be reclassified within equity (not recycled through the P&L) when the investor discontinues the use of the equity method.
The Appendix to this letter includes the FRC's responses to the questions set out in the Invitation to Comment in the ED.
If you would like to discuss these comments, please contact Grant Chatterton on 020 7492 2426, e-mail [email protected], or me.
Yours sincerely
Roger Marshall Chair of the Accounting Council DDI: 020 7492 2434 Email: [email protected]
Aldwych House, 71-91 Aldwych, London WC2B 4HN Tel: +44 (0)20 7492 2300 Fax: +44 (0)20 7492 2399 www.frc.org.uk The Financial Reporting Council Limited is a company limited by guarantee. Registered in England number 2486368. Registered office: as above.
Appendix: Responses to 'Questions for respondents' in the IASB Exposure Draft Equity Method: Share of Other Net Asset Changes
Question 1
The IASB proposes to amend IAS 28 so that an investor should recognise in the investor's equity its share of the changes in the net assets of the investee that are not recognised in profit or loss or OCI of the investee, and that are not distributions received. Do you agree? Why or why not?
Response:
Agree - The proposals are a pragmatic solution that confirm the continuing application of the accounting treatment that existed prior to (and which was not intended to be changed as a result of) the consequential amendments arising from the 2007 revision to IAS 1 Presentation of Financial Statements. 1
Question 2
The IASB also proposes that an investor shall reclassify to profit or loss the cumulative amount of equity that the investor had previously recognised when the investor discontinues the use of the equity method. Do you agree? Why or why not?
Response:
Disagree - The FRC considers that the IASB should reassess the desirability, in general, of recycling profits from equity to the P&L. It would be preferable to reclassify within equity when the investor discontinues the use of the equity method. This would enable any stray amounts left in equity following the loss of significant influence to be sensibly reclassified without requiring recycling from equity. The FRC does not favour recycling from equity because it sets a new precedent (recycling has previously been from OCI) and because it would entail recycling amounts that comprise an ad hoc mix of accounting entries (e.g. it may entail recycling the share-based payment expense).
Question 3
Do you have any other comments on the proposals?
Response:
No other comments.
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The IASB may wish to address the debate concerning whether equity accounting is a one-line consolidation or a method of valuation (e.g. see paragraph AV9) when it reviews equity accounting in accordance with its agenda following the 2012 consultation thereon. ↩