Chapter 10: Interests in Financial Instruments, Associates, Joint Ventures, and Investment Property

Perspective and Issues

A number of IAS address varying aspects of accounting for investments. The now-superseded standard, [AS 25, had offered reporting entities a very wide array of options, ranging from historical costing to full market value; this contributed to the non-comparability across reporting entities that was the subject of severe criticism of the international accounting standard-setting process in its earlier incarnation. With the move to (mostly) fair value accounting for financial assets, this problem has faded.

Under current standards, accounting for passive investments in financial instruments is generally at fair value (an exception is made for held-to-maturity investments in debt instruments), although how the changes in fair value are recognized still depends on management's intentions. Accounting for investments over which the investor has significant influence is generally by the equity method, although for the special case of joint ventures the proportional consolidation method is also permitted. Investments in real estate, other than as productive assets or goods held for sale in the ordinary course of business, is optionally accounted for at either fair value or historical cost.

The relevant standards are IAS 39, which provides guidance for passive investments in debt and equity instruments; IAS 28, governing the accounting for active investments in equity securities; IAS 31, dealing with joint ventures; and IAS 40, covering investments in real property other than as productive capacity or goods to be sold to customers. A number of SIC (interpretations) are also relevant to the discussion in the following pages.

The IASB is currently deliberating a number of revisions to standards addressed in this chapter, under both its Improvements Project and a separate proposed revision to IAS 32 and 39. These important changes, which are anticipated to be enacted essentially as proposed, will be summarized in the appropriate sections of this chapter.

Sources of IAS

IAS 28, 31, 39, 40

SIC 3, 13, 20, 33