Invitation to Comment on the IASB Exposure Draft Equity Method of Accounting IAS 28 Investments in Associates and Joint Ventures (revised 202x)

20 September 2024To:

Members of the Hong Kong Institute of CPAsAll other interested partiesINVITATION TO COMMENT ON THE IASB EXPOSURE DRAFTEquity Method of AccountingIAS 28 Investments in Associates and Joint Ventures (revised 202x)

Comments to be received by 29 November 2024The Financial Reporting Standards Committee (FRSC) of the Hong Kong Institute of CertifiedPublic Accountants (Institute) is seeking comments on the International Accounting StandardsBoard (IASB) Exposure Draft Equity Method of Accounting—IAS 28 Investments in Associates andJoint Ventures (revised 202x). The Exposure Draft is available on the Institute's website:

https://www.hkicpa.org.hk/en/Standards-setting/Standards/Open-for-comment-documents/fredIAS 28 sets out how entities report on investments in associates and joint ventures1 applying theequity method. To respond to stakeholders’ questions on how to apply the equity method, the IASBproposes amendments to IAS 28 to answer application questions and complements the proposedamendments to IAS 28 by proposing new disclosure requirements to IFRS 12 Disclosure ofInterests in Other Entities and IAS 27 Separate Financial Statements.IAS 28 was first issued in 1989. The IASB has taken this opportunity to reorder the Standard in alogical and consistent way to help entities apply it. The IASB expects the proposed amendmentswill reduce diversity in practice and provide users of financial statements with more comparableand useful information.Key proposals in the Exposure DraftThe IASB is proposing to require an investor to:

•measure the cost of an associate, on obtaining significant influence, at the fair value of theconsideration transferred, including the fair value of any previously held ownership interest andany contingent consideration;

•at the date of purchasing an additional ownership interest in an associate, add to the carryingamount of investment the additional share of the fair value of the associate’s identifiable assetsand liabilities, including any goodwill;

•at the date of disposing of an ownership interest, reduce the carrying amount of its investmentby the percentage disposed of and recognising a gain or loss in profit or loss;

•on purchasing an additional ownership interest, not to ‘catch-up’ losses not recognised byreducing the carrying amount of an additional ownership interest;

•recognise separately its share of the associate’s profit or loss and its share of the associate’sother comprehensive income; and•recognise gains and losses in full resulting from all ‘upstream’ and ‘downstream’ transactionswith associates.The Exposure Draft - Snapshot provides the background of the project, an overview of theproposed amendments and the expected effects of the proposals.Impact on entities in Hong KongHolding investments in associates is common in Hong Kong and their impact can be significant tothe financial statements of the entities. Since the Exposure Draft aims to address common1 For simplicity, references to ‘associate’ should be read as also referring to ‘joint venture’.application issues of the equity method, which have posed challenges for many entities, it isexpected that many entities in Hong Kong are likely to be affected by the proposals.The FRSC invites your comments on the Exposure Draft by 29 November 2024 to allow yourcomments to be considered in developing its response to the IASB. Comments should besupported by specific reasoning and should be submitted in written form.Comments may be sent by mail, fax or e-mail to:

Standard Setting DepartmentHong Kong Institute of Certified Public Accountants37th Floor, Wu Chung House213 Queen’s Road EastWanchai, Hong KongFax number (+852) 2865 6776E-mail: commentletters@hkicpa.org.hkComments will be acknowledged and may be made available for public review unless otherwiserequested by the respondent.