Separate financial statements: use of the equity method
When an entity prepares separate financial statements it has the choice of measuring investments in subsidiaries, joint ventures and associates at cost or at fair value. Corporate law in some countries requires listed entities to present separate financial statements using the equity method of accounting to measure these investments.
Consequently, entities in those countries must currently prepare two sets of financial statements. There was strong support from stakeholders in those countries affected, particularly from Latin America, for us to address this issue. Until 2005 the option of using the equity method to measure such investments was permitted—it had been removed as part of the IASB’s improvements project, in 2005, to reduce the number of options available.
We understand that allowing this option would probably reduce compliance costs without a loss of information.
We will consider a proposal to amend IAS 27 Separate Financial Statements to restore this option to use the equity method of accounting and to clarify some matters related to balances with subsidiaries and joint arrangements.