Redeliberations continue on Primary Financial Statements project

Keywords: Mazars, Thailand, IASB, IFRS 8, IAS 7, IAS 28 

13 July 2023 

Several topics were again discussed: 

• associates and joint ventures accounted for using the equity method; and 
• issues relating to management performance measures and operating segment information. 

Associates and joint ventures accounted for using the equity method 

Readers will recall that in October 2021 the IASB tentatively decided to require all entities to classify income and expenses from equity-accounted associates and joint ventures in the investment category of the income statement. 

During the round tables organised by the IASB between September and November 2022, this tentative decision raised a number of questions, particularly from representatives of the insurance sector, who were concerned that such income and expenses would be excluded from the operating category. 

We understand that this was the context in which the IASB chose to re-open this topic. After further deliberations, the IASB ultimately maintained its tentative decision, while introducing a change to the first-time application provisions of the future standard. 

The IASB tentatively decided to provide transition requirements that will permit an entity to elect to measure investments in associates or joint ventures (previously accounted for using the equity method) at fair value through profit or loss, when these investments are directly or indirectly held by an investor that is a venture capital organisation, a mutual fund, unit trust or similar entities including investment-linked insurance funds (using the same categories as in paragraph 18 of IAS 28). Entities that choose this option should present the resulting changes in fair value in the operating category when these investments are made in the course of the entity's main business activity. 

The IASB also tentatively decided to withdraw the new paragraph 38A of IAS 7 proposed in the Exposure Draft which would have required dividends received from associates and joint ventures accounted for using the equity method to be classified as cash flows from investing activities. 

The withdrawal of this paragraph means that dividends received from associates and joint ventures accounted for using the equity method will be presented in the cash flow statement applying the guidance applicable to the entity for other dividends received. 

Thus, in practice, all dividends received (whatever the nature of the underlying investment) should be classified in one single category of the cash flow statement: 

• entities other than those with a specified main business activity (i.e. corporates) would classify dividends received as cash flows arising from investing activities;  
• entities with a specified main business activity – such as financial institutions – should choose whether to present them as cash flows from operating, investing or financing activities. 

Issues relating to management performance measures and operating segment information  

The IASB wished to clarify the relationship between performance measures determined by management and the segment information required under IFRS 8 Operating Segments. 

It has therefore tentatively clarified that management performance measures are measures that reflect management’s view of the performance of the entity as a whole. 

Our reading of the Staff Paper 21B suggests that the amounts reported for each individual segment will not necessarily meet the definition of a management performance measure. This is because segment measures apply to a part of the entity's business and not to the business as a whole. Nonetheless, in the case of an entity with a single operating segment, the amounts presented for this segment (in application of IFRS 8) may meet this definition. 

The IASB also confirmed the proposal in paragraph B83 of the Exposure Draft, which states that, if one or more of an entity’s management performance measures are the same as part of the operating segment information disclosed by the entity in applying IFRS 8, the entity may disclose information about those management performance measures in the same note as the operating segment information, provided that: 

• the entity includes in that note all the information required to be disclosed for management performance measures (see paragraph 106 of the Exposure Draft); or  
• the entity includes in a separate note all the information required for management performance measures.