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AASB 128 - Investments in Associates
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Summary 
Developments, Key Differences & History 
Compared to IFRS 
Interpretations 
Rejection Notices 
Questions & Answers 
Articles 
AASB website 

 
IFRIC Rejections and Guidance
  1. November 2008 - Potential effect of IFRS 3 Business Combinations (as revised in 2008) and IAS 27 Consolidated and Separate Financial Statements (as amended in 2008) on equity method accounting 
  2. April 2003 - Equity method application 
  3. November 2002 - Possible amendment to SIC-12 
  4. August 2002 - The effects of rights of veto on control 
  5. August 2002 - Reciprocal interests 
  6. February 2002 - Investments in associates – investments after discontinuing equity accounting
 
 
1. November 2008 - Potential effect of IFRS 3 Business Combinations (as revised in 2008) and IAS 27 Consolidated and Separate Financial Statements (as amended in 2008) on equity method accounting 
 
Issue:  
 
The IFRIC staff noted that the FASB’s Emerging Issues Task Force (EITF) recently added to its agenda, EITF Issue No. 08-6 Equity Method Investment Accounting Considerations. EITF 08-6 addresses several issues resulting from the recently concluded joint project by the IASB and FASB on accounting for business combinations and accounting and reporting for non-controlling interests that culminated in the issue of IFRS 3 (as revised in 2008) and IAS 27 (as amended in 2008) and SFAS 141(R) and SFAS 160. 
 
IFRIC's Tentative decision:  
 
EITF 08-6 addresses the following four issues: 
 
1 How the initial carrying value of an equity method investment should be determined 
2 How an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed 
3 How an equity method investee’s issue of shares should be accounted for 
4 How to account for a change in an investment from the equity method to the cost method. 
 
The IFRIC noted that IAS 28 Investments in Associates provides explicit guidance on issues 2 and 4. Therefore, the IFRIC does not expect divergence in practice and [decided] not to add these issues to its agenda. The IFRIC asked the staff to carry out additional research and analysis of issues 1 and 3 for consideration at a future IFRIC meeting. 
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2. April 2003 - Equity method application 
 
Issue:  
 
Whether the presumption in the Exposure Draft to improve IAS 28 Accounting for Investments in Associates that an investor has “significant influence” over the operations of an investee if it holds directly or indirectly through subsidiaries, 20 per cent or more of the voting power of the investee is met. The examples fell into two main categories:  
(a) When the investor has a subsidiary that is less than wholly-owned, and the subsidiary holds 20 per cent of the voting power of the investee; and  
(b) When the investor holds 20 per cent or more of the voting power of the investee through associates or joint ventures (rather than subsidiaries).  
 
IFRIC decision:  
 
In the examples that fell under: 
(a) the presumption was met.  
(b) in one case, the conclusion that equity accounting would be applied was based on the mechanics of equity accounting rather than using the 20 per cent presumption, and in another case, it was unclear as to whether the presumption was met.  
The IFRIC agreed to pass this issue to the Improvements project to clarify the wording in IAS 28. Paragraph 6 of the revised IAS 28 was revised to address this issue (paragraph 4 of the exposure draft). 
 
References  
 
Improvements Exposure Draft IAS 28 paragraph 4:  
“If an investor holds, directly or indirectly through subsidiaries, 20 per cent or more of the voting power of the investee, it is presumed that the investor has significant influence....” [emphasis added]  
Improvements Standard IAS 28 paragraph 6:  
“If an investor holds, directly or indirectly (eg through subsidiaries),... 
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3. November 2002 - Possible amendment to SIC-12 
 
Issue:  
 
The IASB, at its October 2002 meeting, requested that the IFRIC explore whether, an appropriate interim solution would be for the IFRIC to make a limited amendment to SIC-12 Consolidation - Special Purpose Entities, in the light of the fact that the Board’s project on consolidation policies and practices (including their application to SPEs) is unlikely to result in a new Standard in the near future.  
The amendment would clarify that a “majority” of benefits or risks is intended to refer to exposure to the majority of the variability of expected economic outcome, rather than the absolute economic outcome. One aim of making such an amendment would be convergence towards the FASB’s approach in developing its project on SPEs. 
 
IFRIC Decision:  
 
IFRIC decided not to recommend such an amendment to SIC-12. Reasons included:  
  • SIC-12 is not interpreted in practice as referring to absolute economic outcome, so the limited amendment proposed would likely have little, if any, practical effect;  
  • There are difficult issues about exactly what is meant by variability of outcome (as well as other issues about the interpretation of SIC-12), that the IFRIC believes are best resolved by the Board in its project; and  
  • As the FASB’s approach was still being finalised, the IFRIC considered it premature to amend SIC-12 in any partial manner. The IFRIC’s analysis was reported to the Board at its December meeting.
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4. August 2002 - The effects of rights of veto on control 
 
Issue:  
 
The IFRIC discussed an issue relating to the effect of rights of veto given to a third party on the assessment of whether an owner of more than half of the voting rights in an enterprise has control. 
 
IFRIC Decision:  
 
The IFRIC agreed not to add this issue to its agenda, because the Board is expected to address this issue in the near future as part of its project on Consolidation and Special Purpose Entities.  
At the February 2004 meeting, the Board tentatively agreed that holders of veto rights may negate apparent power even if  
  • those rights are limited to the ability to block actions if:  
  • those veto rights relate to operating and financing policies; and  
  • those veto rights relate to decisions in the ordinary course of business and not  
  • only to fundamental changes in the organisation (such as disposal of business units or acquisition of significant assets).
The Board will continue to discuss this issue as part of the Consolidation and Special Purpose Entities project. 
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5. August 2002 - Reciprocal interests 
 
Issue:  
 
The IFRIC considered circumstances in which A owns an interest in B, and B concurrently owns an interest in A. Those investments are known as reciprocal interests (or ‘cross-holdings’). The issue was whether the IFRIC should provide guidance as to the appropriate accounting:  
(a) when the cross-holdings are accounted for using the equity method under IAS 28 Accounting for Investments in Associates (considered in August 2002)  
(b) when a control relationship exists, and holdings are accounted for under IAS 27 Consolidated and Separate Financial Statements (considered in April 2003)  
 
IFRIC Decision:  
 
Regarding (a), the IFRIC agreed not to require publication of an Interpretation on this issue because paragraph 20 of IAS 28 (revised 2003) requires elimination of reciprocal interests (through application of consolidation concepts).  
Regarding (b), the IFRIC decided to wait until the amendments to improve IAS 27 are finalised (as part of the Business Combinations Phase II project) before considering whether to take this issue onto the agenda.  
The IFRIC is expected to reconsider these issues once the Business Combinations Phase II project is finalised, as expected in 2005. 
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6.February 2002 - Investments in associates – investments after discontinuing equity accounting 
 
Issue:  
 
How an investor should account for an additional investment made in an associate when the equity method of accounting has been discontinued because the investor’s share of the associate’s post-acquisition losses is such that the carrying amount of the investment is nil. 
 
IFRIC Decision:  
 
The IFRIC decided not to add this issue onto its agenda because it does not meet IFRIC’s agenda criterion of having practical and widespread relevance. 
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