Difference between Ind AS 28 on Investments in Associates and existing AS 23 on Accounting for Investments in Associates in Consolidated Financial Statements

(i) Ind AS 28 excludes from its scope, investments in associates held by venture capital organisations, mutual funds, unit trusts and similar entities including investment-linked insurance funds, which are treated in accordance with Ind AS 39 Financial Instruments: Recognition and Measurement. The existing AS 23 does not make such exclusion.

(ii) As per the definition given in Ind AS 28, control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The definition of control given in the existing AS 23 is rule-based, which requires the ownership, directly or indirectly through subsidiary(ies), of more than half of the voting power of an enterprise; or control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other entity so as to obtain economic benefits from its activities.

(iii) In the existing AS 23, ‘Significant Influence’ has been defined as ‘power to participate in the financial and/or operating policy decisions of the investee but is not control over those policies’. In Ind AS 28, the same has been defined as ‘power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies’. Ind AS 28 defines the joint control also.

(iv) For considering share ownership for the purpose of significant influence, potential equity shares of the investee held by investor are not taken into account as per the existing AS 23. As per Ind AS 28 , existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether an entity has significant influence or not.

(v) Existing AS 23 requires application of the equity method only when the entity has subsidiaries and prepares Consolidated Financial Statements. Ind AS 28 requires application of equity method in financial statements other than separate financial statements even if the investor does not have any subsidiary.

(vi) One of the exemptions from applying equity method in the existing AS 23 is where the associate operates under severe long-term restrictions that significantly impair its ability to transfer funds to the investee. No such exemption is provided in Ind AS 28. An explanation has been given in existing AS 23 regarding the term ‘near future’ used in another exemption from applying equity method, i.e, where the investment is acquired and held exclusively with a view to its subsequent disposal in the near future. This explanation has not been given in the Ind AS 28 as such situations are covered by Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations.

(vii) As per the existing AS 23, in separate financial statements, investment in an associate is not accounted for as per the equity method, the same is accounted for in accordance with existing AS 13, Accounting for investments. As per Ind AS 27, the same is to be accounted for at cost or in accordance with Ind AS 39 Financial Instruments: Recognition and Measurement.

(viii) The existing AS 23 permits the use of financial statements of the associate drawn upto a date different from the date of financial statements of the investor when it is impracticable to draw the financial statements of the associate upto the date of the financial statements of the investor. There is no limit on the length of difference in the reporting dates of the investor and the associate. As per Ind AS 28 , length of difference in the reporting dates of the investor and the associate should not be more than three months unless it is impracticable.

(ix) Both the existing AS 23 and Ind AS 28 require that similar accounting policies should be used for preparation of investor’s financial statements and in case an associate uses different accounting policies for like transactions, appropriate adjustments shall be made to the accounting policies of the associate. The existing AS 23 provides exemption to this that if it is not possible to make adjustments to the accounting policies of the associate, the fact shall be disclosed along with a brief description of the differences between the accounting policies. Ind AS 28 provides that the investor’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances unless it is impracticable to do so.

(x) As per existing AS 23, investor’s share of losses in the associate is recognised to the extent of carrying amount of investment in the associate. As per Ind AS 28, carrying amount of investment in the associate as well as its other long term interests in the associate that, in substance form part of the investor’s net investment in the associate shall be considered for recognising investor’s share of losses in the associate.

(xi) With regard to impairment, the existing AS 23 requires that the carrying amount of investment in an associate should be reduced to recognise a decline, other than temporary, in the value of the investment. Ind AS 28 requires that after application of equity method, including recognising the associate’s losses, the requirements of Ind AS 39 shall be applied to determine whether it is necessary to recognise any additional impairment loss.

(xii) Ind AS 28 requires more disclosures as compared to the existing AS 23. (ICAI)