This free, guided checker walks your finance team through the key decision points for IAS 28 Equity Method Application and Impairment. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Significant influence is the power to participate in the investee's financial and operating policy decisions without control or joint control (IAS 28.3), presumed at 20 percent of voting power unless clearly demonstrated otherwise (IAS 28.5). Weigh board seats, policy participation, material transactions, and potential voting rights that are currently exercisable (IAS 28.7-8). The trap is mechanical reliance on the 20 percent line - contractual rights or a dominant co-investor can rebut the presumption in either direction.
Without significant influence the equity method in IAS 28.16 does not apply; measure the investment at fair value under IFRS 9 unless control (IFRS 10) or joint control (IFRS 11) exists.
Official guidance: IFRS issued standards
IAS 28.32 applies the equity method from the date the investee becomes an associate and allocates cost at that date: goodwill (the excess of cost over the share of the net fair value of identifiable assets and liabilities) stays inside the carrying amount, while any excess of that share over cost is income in the acquisition period. Build a notional purchase-price allocation so basis differences on depreciable assets can adjust later shares of profit. Influence can arise without a purchase - board rights granted under a shareholder agreement also start the clock.
Document the commencement date and the IAS 28.32 cost allocation - goodwill within the carrying amount or a bargain excess in income - before recording equity-method balances.
Official guidance: IFRS issued standards
Under IAS 28.10 the carrying amount is increased or decreased by the investor's share of the associate's post-acquisition profit or loss, adjusted for basis-difference depreciation from the commencement allocation (IAS 28.32) and cumulative preference dividends (IAS 28.37). Use the associate's statements as of the investor's reporting date, or a gap of no more than three months adjusted for significant transactions in between (IAS 28.33-34). Losses are recognized only until the net investment, including long-term interests, reaches zero (IAS 28.38).
Compute and post the share of the associate's profit or loss under IAS 28.10 before period-end close, using statements dated no more than three months from the investor's reporting date (IAS 28.34).
Official guidance: IFRS issued standards
IAS 28.35 requires the investor's financial statements to be prepared using uniform accounting policies for like transactions and events, so IAS 28.36 adjusts the associate's reported amounts to conform before computing the pickup. Typical adjustment areas are revaluation policies, capitalization thresholds, and local-GAAP-to-IFRS conversions for foreign associates. Test materiality of the differences on the share of profit, not on the associate's totals.
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Official guidance: IFRS issued standards
IAS 28.28 recognizes gains and losses from upstream (associate to investor) and downstream (investor to associate) transactions only to the extent of unrelated investors' interests - the investor's share is eliminated while the underlying asset remains in inventory, fixed assets, or capitalized costs. Sweep intercompany listings in both directions, including non-monetary asset contributions for equity (IAS 28.30). Losses are not eliminated when the transaction evidences a reduction in net realisable value or impairment of the asset (IAS 28.29).
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Official guidance: IFRS issued standards
Compute the elimination as the unrealized margin multiplied by the investor's ownership percentage, applied to assets still on hand: unsold inventory, undepreciated fixed-asset margins, and capitalized services. Release the elimination as inventory sells through or over the remaining depreciable life. The recurring error is eliminating one direction only - IAS 28.28 covers both upstream and downstream transactions.
Eliminate the investor's share of unrealized profit on transactions with the associate as required by IAS 28.28 before closing the equity-method balances.
Official guidance: IFRS issued standards
Under IAS 28.10 distributions received from the associate reduce the carrying amount of the investment - recognizing them as income would double count returns already captured through the share of profit (IAS 28.11). Trace each declared dividend to the associate's approval minutes and the cash receipt. Distributions that would push the carrying amount below zero need scrutiny: they may signal an incomplete pickup or raise the loss-recognition questions in IAS 28.38-39.
Credit distributions received against the investment carrying amount under IAS 28.10 rather than recognizing dividend income, before period-end close.
Official guidance: IFRS issued standards
IAS 28.10 adjusts the carrying amount for the investor's proportionate interest in changes in the associate's other comprehensive income, such as PP&E revaluations and foreign exchange translation differences, recognized in the investor's OCI. Other equity movements, like share-based payment credits in the associate's equity, also change the investor's interest and need a documented treatment. On a reduction in ownership interest, the related OCI proportion is reclassified to profit or loss where the associate would reclassify it on disposal (IAS 28.25).
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Official guidance: IFRS issued standards
After applying the equity method, including recognizing losses under IAS 28.38, IAS 28.40 requires the entity to apply IAS 28.41A-41C to determine whether objective evidence exists that the net investment is impaired - loss events such as significant financial difficulty, default, or adverse market and technological changes. Because goodwill inside the investment is not separately tested, the whole net investment is assessed. A quoted price persistently below carrying amount for a listed associate is evidence that should not be dismissed without analysis.
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Official guidance: IFRS issued standards
IAS 28.42 tests the entire carrying amount of the investment as a single asset under IAS 36, comparing recoverable amount - the higher of value in use and fair value less costs of disposal - with carrying amount; the loss is not allocated to the goodwill inside the investment and is reversed under IAS 36 to the extent recoverable amount later increases. IAS 28.43 allows value in use to be estimated from the share of the associate's cash flows or from expected dividends and ultimate disposal proceeds. Document the model choice - both approaches should give consistent answers under the same assumptions.
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Official guidance: IFRS issued standards
Associate disclosures sit in IFRS 12: the nature, extent, and financial effects of the interest (IFRS 12.21), significant restrictions and the unrecognized share of losses (IFRS 12.22), and commitments and contingent liabilities (IFRS 12.23), with summarized financial information per IFRS 12.B12-B14 reconciled to the carrying amount. Present the associate's full IFRS amounts, adjusted for fair value and policy alignments, not the investor's share (IFRS 12.B14). A stale summarized-information table that does not reconcile to the pickup is the most common deficiency.
Complete the IFRS 12.21-23 associate disclosures, including the IFRS 12.B12-B14 summarized financial information, before financial statement authorization.
Official guidance: IFRS issued standards
The rollforward is the control that proves each IAS 28.10 adjustment: initial cost and allocation (IAS 28.32), share of profit or loss and OCI, distributions, basis-difference amortization, unrealized profit eliminations (IAS 28.28), and impairment (IAS 28.42). It also feeds the IFRS 12.B14(b) reconciliation of summarized financial information to the carrying amount. Investigate residuals rather than plugging them to the share-of-profit line.
Equity-method application under IAS 28.10-43 and the IFRS 12.21-23 associate disclosures appear complete. Prepare the equity-method rollforward reconciling every IAS 28.10 movement in the carrying amount before authorization.
Official guidance: IFRS issued standards
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