IAS 28 Investments in Associates and Joint Ventures

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IAS 28 requires an investor to account for its investment in associates using the equity method. IFRS 11 requires an investor to account for its investments in joint ventures using the equity method (with some limited exceptions). IAS 28 prescribes how to apply the equity method when accounting for investments in associates and joint ventures.

An associate is an entity over which the investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee without the power to control or jointly control those policies. 

If an entity holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence.  A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Under the equity method, on initial recognition the investment in an associate or a joint venture is recognised at cost.  The carrying amount is then increased or decreased to recognise the investor’s share of the subsequent profit or loss of the investee and to include that share of the investee’s profit or loss in the investor’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the investor’s proportionate interest in the investee and for the investee’s other comprehensive income.

Standard history

In April 2001 the International Accounting Standards Board (Board) adopted IAS 28 Accounting for Investments in Associates, which had originally been issued by the International Accounting Standards Committee in April 1989. IAS 28 Accounting for Investments in Associates replaced those parts of IAS 3 Consolidated Financial Statements (issued in June 1976) that dealt with accounting for investment in associates.

In December 2003 the Board issued a revised IAS 28 with a new title—Investments in Associates. This revised IAS 28 was part of the Board’s initial agenda of technical projects and also incorporated the guidance contained in three related Interpretations (SIC‑3 Elimination of Unrealised Profits and Losses on Transactions with Associates, SIC‑20 Equity Accounting Method—Recognition of Losses and SIC‑33 Consolidation and Equity Method—Potential Voting Rights and Allocation of Ownership Interests).

In May 2011 the Board issued a revised IAS 28 with a new title—Investments in Associates and Joint Ventures.

In September 2014 IAS 28 was amended by Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28). These amendments addressed the conflicting accounting requirements for the sale or contribution of assets to a joint venture or associate. In December 2015 the mandatory effective date of this amendment was indefinitely deferred by Effective Date of Amendments to IFRS 10 and IAS 28.

In December 2014 IAS 28 was amended by Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28). These amendments provided relief whereby a non-investment entity investor can, when applying the equity method, choose to retain the fair value through profit or loss measurement applied by its investment entity associates and joint ventures to their subsidiaries.

In October 2017, IAS 28 was amended by Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28). These amendments clarify that entities apply IFRS 9 Financial Instruments to long-term interests in an associate or joint venture to which the equity method is not applied.

Other Standards have made minor consequential amendments to IAS 28. They include IFRS 9  Financial Instruments (issued July 2014),  Equity Method in Separate Financial Statements (Amendments to IAS 27) (issued August 2014), Annual Improvements to IFRS® Standards 2014–2016 Cycle (issued December 2016), IFRS 17  Insurance Contracts (issued May 2017) and  Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018).

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