IASB finalises amendments clarifying the fair value option in IAS 28 and related BDO article

The International Accounting Standards Board (IASB) has finalised and issued targeted amendments to the fair value option in IAS 28 Investments in Associates and Joint Ventures.

Entities listed in IAS 28.18 may elect to measure investments in joint ventures and associates at fair value through profit or loss in accordance with IFRS 9 Financial Instruments.

The amendments clarify that ‘similar entities’ per IAS 28.18 include those entities that invest in the following assets as its main business activity as per IFRS 18 Presentation and Disclosure in Financial Statements:

• investments in associates, joint ventures and unconsolidated subsidiaries;
• cash and cash equivalents; and
• other assets if they generate a return individually and largely independently of the entity’s other resources.

IFRS 18 requires specified income and expenses from investments in associates, joint ventures and unconsolidated subsidiaries accounted applying the equity method in the investing category, irrespective of whether the entity invests in such assets as a main business activity. If such investments are not accounted applying the equity method and the entity makes these investments as a main business activity, IFRS 18 requires the related income and expenses to be classified in the operating category. IFRS 18.C7 permits an entity eligible to apply IAS 28.18 to change its election from the equity method to fair value through profit or loss at the date of initial application of IFRS 18.

The International Accounting Standards Board (IASB) received feedback that there was diversity in interpretation of the term ‘similar entities’ in IAS 28.18. The resulting lack of clarity about which entities can apply the fair value option in IAS 28.18 also led to possible diversity in practice in applying the classification requirements of IFRS 18. Therefore, the IASB issued the amendments to IAS 28 to clarify the meaning of ‘similar entities’ in IAS 28.18.

The amendments will be effective from when an entity first applies IFRS 18.

The press release and amendments may be accessed here.

BDO also published an article on these amendments that may be accessed here.