IAS 28 has never been one of the standards that attracts much attention outside technical accounting circles.
It probably should.
Investments in associates and joint ventures can involve large amounts of money, complicated ownership structures and significant management judgement. Yet applying the equity method has produced questions that the existing standard does not always answer clearly.
That is why IAS 28 is being rewritten.
The International Accounting Standards Board has now finished its technical discussions on the Equity Method project. A revised IAS 28 is expected in the first half of 2027 and is due to become effective from 1 January 2029, with earlier application permitted.
For businesses, the objective is greater consistency.
For ACCA SBR candidates, it creates an excellent current issues topic because the changes are not about learning a completely new accounting model. They are about clarifying how an existing model should work when real transactions become complicated.
Candidates working with an ACCA SBR tutor should pay attention to the reasoning behind the changes rather than trying to memorise every technical decision before the revised standard is published.
The equity method looks simple until something changes
The basic principle is familiar.
An associate is an entity over which an investor has significant influence without having control or joint control.
Holding 20 per cent or more of the voting power normally creates a presumption of significant influence, although the facts can demonstrate otherwise.
Joint ventures are different arrangements, but the investment is also generally accounted for using the equity method.
At initial recognition, the investment is recorded at cost.
After that, the carrying amount changes as the investor recognises its share of the associate or joint venture’s profit or loss and other comprehensive income. Distributions received generally reduce the investment balance.
In a simple textbook example, the method is straightforward.
Real businesses do not stay simple.
An investor may buy another stake.
Its percentage ownership may change because the associate issues new shares.
The investor may sell an asset to the associate.
The associate may sell an asset back.
A previously held investment may become an associate.
An associate may perform badly enough to raise impairment concerns.
Once those events occur, questions appear that the existing IAS 28 has not always answered in enough detail.
That is the problem the IASB has been trying to solve.
This is clarification rather than replacement
The revised IAS 28 is not expected to abolish the equity method.
The underlying accounting remains.
What changes is the level of guidance around applying it.
That distinction matters for SBR candidates.
A weak current issues answer might say that IAS 28 no longer works and is being replaced.
That would miss the point.
The IASB’s project has focused on answering application questions, reducing diversity in practice and reorganising the standard so that the requirements are easier to follow.
In other words, the accounting model survives.
The rules around difficult situations become clearer.
That is a much better way to frame the development in an exam.
Initial recognition is becoming more explicit
One important area is what happens when an investor first obtains significant influence or joint control.
Imagine an investor already owns a small interest in another company.
The holding is currently accounted for as a financial asset.
The investor then buys additional shares and gains significant influence.
At that point, the accounting changes to the equity method.
The question is what cost should be recognised for the associate.
The IASB’s direction is to measure the cost using the fair value of the consideration transferred, including the fair value of any previously held interest.
That gives the transaction a clearer acquisition-date basis.
Contingent consideration can also form part of the consideration transferred and is measured at fair value.
This matters because moving into associate accounting should not leave uncertainty over how the starting investment amount is determined.
For an SBR candidate, the stronger answer is not simply to say that the investment is recorded at cost.
Explain what creates that cost.
Where there was an existing interest, identify that the transition into significant influence needs to be reflected in the measurement.
That demonstrates understanding rather than repetition.
Acquisition-related costs are being separated from the investment
Another useful clarification concerns professional fees and other costs incurred when acquiring an associate or joint venture interest.
Businesses may incur legal fees, advisory fees, due diligence costs and other transaction expenses.
The IASB has tentatively decided that acquisition-related costs incurred to obtain significant influence or joint control should be recognised as an expense in profit or loss.
The same approach applies to acquisition-related costs connected with purchasing an additional ownership interest while retaining significant influence or joint control.
This produces a cleaner distinction between the investment itself and the cost of arranging the transaction.
It also creates a useful SBR scenario.
Imagine management has capitalised substantial advisory fees into the carrying amount of an associate.
A good answer would not merely state the revised treatment.
It would identify the issue, explain that the transaction costs are separate from the consideration transferred and recommend that the inappropriate capitalised amount be expensed.
That is the style of answer that converts a current accounting development into professional advice.
Buying more shares no longer needs to feel like an accounting grey area
Ownership interests do not remain static.
An investor with 30 per cent of an associate might buy another 10 per cent but still not gain control.
The investment remains an associate.
The question is how the additional interest should be reflected.
The IASB’s direction is effectively to treat an increase in ownership interest as a purchase of an additional interest.
That sounds obvious, but it creates important measurement questions.
The investor needs to recognise the additional share acquired and consider the relevant fair values.
The IASB has also considered practical relief where obtaining full fair value information for the additional share of identifiable assets and liabilities would create unnecessary work without materially affecting the financial statements.
That is an important reminder that standard setting is not only about theoretical purity.
Accounting requirements also have to work in practice.
For SBR, this creates two possible angles.
The technical angle is how the carrying amount changes.
The professional angle is whether management has reliable information to support the measurement and whether any practical relief is genuinely available.
Ownership can fall without significant influence disappearing
The reverse situation is equally important.
An investor may reduce its ownership interest but continue to have significant influence.
For example, a holding might fall from 35 per cent to 25 per cent.
The investment remains an associate.
Under the revised approach, the reduction is treated in substance as a disposal of part of the ownership interest.
This is more useful than simply saying that the investor should adjust the carrying amount somehow.
It provides a clearer transaction logic.
The investor has disposed of part of its economic interest while retaining the relationship that requires equity accounting.
Candidates should keep the sequence clear.
First ask whether significant influence remains.
If it does, continue using the equity method and account for the reduction appropriately.
If significant influence is lost entirely, a different accounting issue arises.
That separation between status and measurement is important.
Changes can happen even when the investor does nothing
A more interesting situation occurs when the investor’s ownership percentage changes because the associate itself undertakes a transaction.
Suppose an associate issues new shares to another investor.
The original investor buys nothing and sells nothing, but its percentage ownership falls.
Economically, its interest has been diluted.
This is one reason the IASB project has been necessary.
A change in ownership does not always come from the investor signing a purchase or sale agreement.
The accounting still needs to reflect the changed economic interest.
The current direction is to treat increases and decreases in ownership consistently with purchases and disposals where significant influence is retained.
That gives candidates a useful exam habit.
Do not look only for cash paid or shares sold by the investor.
Look at whether the investor’s economic interest in the associate has changed.
The accounting question follows the economic change, not just the legal paperwork.
Transactions with associates have been one of the difficult areas
One of the messier areas of IAS 28 has involved transactions between an investor and its associate.
A downstream transaction occurs when the investor sells or contributes an asset to the associate.
An upstream transaction goes the other way.
The difficulty is deciding how much of any resulting gain or loss should be recognised.
Historically, the interaction between IAS 28 and IFRS 10 has created questions, particularly around transfers involving businesses and subsidiaries.
The IASB’s latest direction introduces an accounting policy choice for many transactions with associates.
An investor would be permitted to choose either full recognition of gains and losses or restricted recognition, subject to specific treatment where a business is transferred.
That choice would then need to be applied consistently and disclosed.
This is a good example of why the project matters.
Without clarity, two companies could account differently for economically similar transactions because they interpret the existing requirements differently.
The revised approach aims to make the available accounting routes explicit rather than leaving the difference buried in conflicting interpretations.
Accounting policy choices need transparency
Allowing a choice does not remove the need for useful information.
If management can choose between full and restricted recognition for certain gains and losses on transactions with associates, investors need to know which policy has been selected.
The IASB has therefore been developing disclosure requirements around these transactions.
The principle is sensible.
When accounting policy affects the timing or amount of recognised profit, users need enough information to understand the effect.
A board should not treat the policy choice as a purely technical finance decision.
Management should consider consistency, comparability and investor understanding.
The policy should be documented.
Material transactions should be explained.
Changes should not be made simply because one treatment produces a more attractive result.
That is where a technical IAS 28 question can become an ethics and governance question in SBR.
Impairment indicators are being cleaned up
Impairment is another area where the existing wording has caused difficulty.
IAS 28 currently includes indicators that can suggest an investment may be impaired.
One of the historic references involves a significant or prolonged decline in fair value below cost.
The IASB has proposed moving away from that wording.
The focus instead becomes whether fair value has declined below the carrying amount of the net investment.
The words “significant or prolonged” are also being removed from this particular indicator.
This makes conceptual sense.
Once the equity method has been applied for several years, the original cost may no longer be the most relevant comparison.
The carrying amount has moved as the investor recognises its share of profit, loss, other comprehensive income and distributions.
Comparing current fair value with that carrying amount gives a more relevant signal of whether impairment may exist.
For candidates, the lesson is broader than memorising a revised impairment indicator.
Always ask what the number should be compared with and why.
Fair value evidence may come from real transactions
The revised guidance is also expected to clarify sources of information about fair value.
An investor may obtain useful evidence when it purchases an additional interest, sells part of its holding or observes a quoted market price.
This sounds obvious, but it matters in practice.
Management should not ignore observable transaction evidence simply because its internal model produces a more comfortable answer.
Suppose an investor’s carrying amount in an associate is £80 million.
A recent arm’s-length transaction involving the same shares implies a materially lower value.
That does not automatically prove the investment is impaired.
It does create evidence that must be considered.
A professional accountant should investigate the difference rather than dismissing the market evidence.
That is an excellent professional scepticism point for an SBR answer.
The revised standard should be easier to navigate
Not every improvement involves changing accounting outcomes.
IAS 28 has existed in different forms for decades and has accumulated amendments over time.
The IASB is using the project to reorganise the requirements into a style more consistent with newer IFRS Accounting Standards.
This matters more than it sounds.
Poorly organised standards increase the risk of inconsistent application.
Preparers may find one requirement but miss a related exception elsewhere.
Students may memorise isolated paragraphs without seeing the overall logic.
Auditors may spend more time resolving interpretation questions.
A clearer standard should reduce some of that friction.
For current candidates, this is a useful reminder that standard setting is not always driven by a completely new economic problem.
Sometimes the problem is that an existing requirement has become difficult to apply consistently.
Improving understandability can therefore improve reporting quality.
The revised IAS 28 will not arrive immediately
The IASB concluded its technical discussions in September 2026.
The next stage is balloting.
The revised standard is expected to be issued in the first half of 2027.
Its effective date is expected to be for annual reporting periods beginning on or after 1 January 2029, with early application permitted.
That timeline matters.
Candidates should distinguish between the current standard and the forthcoming revised requirements.
Until the new standard is issued and becomes applicable, companies continue to account under the requirements currently in force unless early application later becomes available and is chosen.
An SBR current issues answer should therefore use careful language.
Do not write that every proposed or tentative decision is already mandatory.
Say that the IASB has completed technical deliberations and that the revised standard is expected to incorporate those decisions when issued.
That distinction shows professional accuracy.
Transition will need planning
A revised accounting standard does not become an implementation project only on its effective date.
Companies with significant associate and joint venture interests will need to understand how the new requirements affect existing accounting policies.
They may need to identify historic transactions.
Systems may need to capture information about ownership changes.
Disclosure processes may need to collect information that was not previously reported separately.
Transaction approval procedures may need to distinguish different types of associate transactions.
Finance teams may also need to assess how transition requirements affect previously unrecognised gains or losses.
The board should therefore ask how material the company’s associate and joint venture interests are and whether the revised requirements could affect reported profit, carrying values or disclosures.
That is the difference between technical compliance and implementation planning.
Why this matters to investors
Associates can represent significant parts of a group’s economic exposure.
An investor may not control the business, but the associate can still contribute substantial profit, risk and value.
Users therefore need to understand what sits behind the single investment number.
Changes in ownership matter.
Transactions between the investor and associate matter.
Impairment matters.
Policy choices affecting recognised gains matter.
The revised IAS 28 is intended to improve consistency so that users are less dependent on understanding different interpretations adopted by different companies.
That does not remove judgement.
It should make the areas of judgement clearer.
How this could appear in an SBR scenario
Imagine a listed group owns 30 per cent of another company.
During the year, it buys another 5 per cent.
It incurs £1 million of advisory fees.
Later, the associate issues shares to another investor, diluting the group’s interest.
The group also sells a property to the associate at a profit.
At year end, the quoted market value of the investment has fallen significantly below its carrying amount.
That single scenario could test several areas of the revised IAS 28 project.
A strong answer would separate the issues rather than treating “associate accounting” as one topic.
The candidate would consider the additional purchase.
They would address the acquisition-related costs.
They would analyse the dilution.
They would identify the policy applied to the property transaction.
They would consider whether the fall in fair value creates an impairment indicator.
Then they would explain the effect and reach conclusions.
That is exactly the kind of connected reporting analysis SBR rewards.
Do not memorise the project like a list of amendments
Current issues revision often goes wrong when candidates collect lists.
IAS 28 change one.
IAS 28 change two.
IAS 28 change three.
That is difficult to remember and even harder to apply.
A better approach is to organise the project around accounting decisions:
- How is the investment measured when significant influence begins?
- What happens when ownership increases?
- What happens when ownership falls but significant influence remains?
- How are transactions with the associate treated?
- What evidence suggests impairment?
- What does the investor need to disclose?
Those questions turn the project into a logical story.
They are also much easier to apply to an unfamiliar scenario.
The strongest answers explain why the change is needed
An examiner asking about a current reporting development is unlikely to be impressed by a candidate simply reproducing meeting decisions.
The higher-value discussion is why the changes matter.
The IASB is trying to reduce inconsistent application.
It wants clearer treatment for transactions that the existing standard did not address sufficiently.
It wants useful disclosures where accounting policy choices affect reported gains.
It wants impairment indicators to reflect the economics of the current investment rather than rely on outdated wording.
It wants IAS 28 to be easier to understand.
Those objectives provide context.
Once you understand them, you can write a sensible answer even if you cannot remember every technical detail.
Connect the accounting to management behaviour
An associate question is not always just a mechanical accounting question.
Management may prefer a treatment because it recognises a larger gain.
It may resist an impairment indicator because recognising an impairment would reduce profit.
It may structure a transaction with an associate in a particular way.
It may classify transaction costs incorrectly to avoid an immediate expense.
Those facts create opportunities to discuss professional judgement, bias and governance.
A good accountant does not simply calculate the number management wants.
They assess the substance of the transaction and apply the accounting consistently.
That is where SBR becomes a professional exam rather than a memory exercise.
What finance teams should do before 2029
The effective date may still be some distance away, but companies with material associates should not ignore the development.
The first step is understanding the exposure.
Which associates and joint ventures are material?
How frequently does the group buy or sell additional interests?
Are transactions with associates common?
Does the organisation have significant unrecognised or restricted gains from historic transactions?
How is impairment currently monitored?
What information will be needed for the revised disclosures?
The implementation effort will vary enormously.
A company with one stable associate and no significant transactions may have little work.
A group with a complex portfolio of joint ventures, regular ownership changes and substantial intercompany transactions may have considerably more.
The board needs that assessment before the implementation deadline becomes urgent.
What candidates should do now
Candidates do not need to memorise the entire IASB project.
Understand the existing equity method first.
Then understand the problems the revised standard is trying to solve.
Practise applying those problems to short scenarios.
If you are building current issues knowledge through an ACCA SBR course, keep the project linked to question practice rather than creating another long technical note that you never use.
A strong revision page could contain the current principle, the application problem, the likely revised approach and one short example.
That is enough to build a useful exam answer.
IAS 28 is getting clearer rather than becoming completely different
The most important point is also the simplest.
The equity method is staying.
Associates still matter.
Significant influence still matters.
The investor still recognises its share of the associate’s performance.
What is changing is the clarity around the difficult moments.
How do you establish the starting amount?
What happens when ownership moves?
How do you treat transactions between the parties?
What evidence suggests impairment?
What needs to be disclosed?
Those are practical questions that accountants have had to answer even when IAS 28 was not explicit enough.
The revised standard is intended to make those answers more consistent.
For SBR candidates, that makes the project worth following.
Not because IAS 28 suddenly becomes a completely new standard.
Because it demonstrates exactly what current issues questions are designed to test.
A familiar accounting principle meets a messy real-world transaction.
The rules need interpretation.
Management needs advice.
And the accountant needs to turn both into a clear conclusion.
