The Accounting Standards Committee (ASC) has issued amendments to SFRS(I) 1-28 and FRS 28 concerning the fair value option for investments in associates and joint ventures.
The amendments clarify which entities may elect to measure qualifying investments at fair value through profit or loss, instead of applying the equity method. They are particularly relevant to venture capital organisations, investment funds, insurers and other entities whose main business activity includes investing in specified assets.
Financial reporting impact
Eligible entities may continue to apply the fair value option to qualifying investments in associates and joint ventures. The clarification may affect:
- whether an investment is measured at fair value or under the equity method;
- the level of volatility recognised in profit or loss;
- the presentation of investment income and fair value movements;
- operating profit and other performance measures; and
- the extent of valuation and fair value disclosures required.
Entities adopting SFRS(I) 18 or FRS 118 should also consider whether income and expenses from these investments are presented within the operating or investing category.
Practical issues
Management should assess and document whether investing is a main business activity of the reporting entity. This assessment may require consideration of the entity’s business model, internal reporting, capital allocation, investment strategy and communications with investors.
Entities should also:
- identify all investments in associates and joint ventures;
- review existing accounting policies and elections;
- assess the availability and quality of valuation data;
- enhance controls over valuation models and assumptions;
- consider effects on covenants, remuneration and regulatory measures; and
- evaluate related deferred tax consequences.
Auditors are likely to focus on the eligibility assessment, significant management judgments and the reliability of fair value measurements, particularly for unlisted investments.
Action plans
Affected entities should incorporate the amendments into their implementation plans for SFRS(I) 18 or FRS 118. Early discussion with auditors and audit committees is recommended, especially where the amendments could materially affect profit, operating performance or key financial indicators.
Source: ASC, 3 August 2026