Accountancy Europe generally welcomes the proposed amendments to IAS 28 and consider them as useful to foster consistency. In our view, this project is a unique opportunity to clarify whether (or when) the Equity Method is a consolidation or measurement method.
Main concern: Purchase Price Allocation exercise
We are mainly concerned with the proposal that an investor would perform a full Purchase Price Allocation (PPA) exercise and recognise goodwill, or a bargain purchase each time an additional ownership interest is purchased while retaining significant influence. We are not convinced that the cost-benefit test is met. In our view, this is not only costly and burdensome, but also provides little relevant information. We invite the Board to explore more simplified ways to account for this change in ownership.
Important matters to address regarding IAS 28
We also draw the Board’s attention to the following important matters:
- We note concerns that arise when using the equity method, as proposed in the ED, to account for a subsidiary in the parent’s separate financial statements in accordance with IAS 27. Applying the equity method as proposed in the ED will result in differences in the share of profit or loss under IAS 28 compared with the subsidiary’s profit or loss attributable to owners of the parent in accordance with IFRS 10. Similarly, there would be differences in the share of net assets under IAS 28 compared with the subsidiary’s equity attributable to owners of the parent under IFRS 10. Answering the question of consolidation or measurement approach for the equity method could lead to a better understanding of, or eliminating, these differences.
- IAS 28 does not make any distinction between the acquisition of a business or of a group of assets. In certain circumstances, the recognition of goodwill is questionable at both initial and subsequent recognition.
- Some of the additional disclosure requirements are difficult to produce and, in certain cases, are seen to be commercially sensitive. Therefore, they seem to contradict the simplification objective pursued by the project.
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