IAS 28 Exposure Draft: Clarifying the Fair Value Option for Associates and Joint Ventures
In February 2026, the International Accounting Standards Board (IASB) issued an Exposure Draft proposing amendments to IAS 28 Investments in Associates and Joint Ventures.
The proposed amendments concern the Fair Value Option (FVO) for investments in associates and joint ventures. Although the subject may appear technical, the core issue is how these investments are measured and how the resulting gains or income are classified in profit or loss.
What Does IAS 28 Cover?
IAS 28 governs the accounting for:
Investments in associates, where the investor generally has significant influence, often indicated by an ownership interest of approximately 20% to 50%; and
Investments in joint ventures.
These investments are normally accounted for using the equity method.
Under the equity method:
The investment is initially recognised at cost;
The carrying amount is subsequently adjusted for the investor’s share of the associate’s or joint venture’s profit or loss; and
The investor’s share of profit or loss is generally presented as a separate line item in the statement of profit or loss.
What Is the Fair Value Option?
Instead of applying the equity method, certain entities may elect to measure qualifying investments at fair value through profit or loss (FVTPL) under IFRS 9 Financial Instruments.
This means that:
The investment is remeasured at fair value at each reporting date; and
Changes in fair value are recognised directly in profit or loss.
Traditionally, this option has been available to certain types of entities, including:
Venture capital organisations;
Mutual funds;
Unit trusts; and
Similar entities, including investment-linked insurance funds.
What Is the Problem?
The current wording refers to “similar entities, including investment-linked insurance funds”, but this expression has been interpreted differently in practice.
Some stakeholders interpret it narrowly, while others interpret it more broadly. This has resulted in:
Inconsistent application;
Different classifications of income and gains; and
Reduced comparability between companies.
Why Has This Become More Important?
The issue has become more significant because of IFRS 18 Presentation and Disclosure in Financial Statements, which changes the classification of income and expenses in the statement of profit or loss.
Under IFRS 18:
Income from investments accounted for using the equity method is generally classified within the investing category; while
Income from fair value investments may be classified within the operating category when investing is the entity’s main business activity.
This can significantly affect how an entity’s performance is presented.
Example: An Insurance Company
Assume that an insurance company invests significantly in associates as part of its core business model.
If it applies the:
Equity method, the relevant income may be classified as investing income; or
Fair value option, the relevant income may be classified as operating income if investing is the entity’s main business activity.
As a result, the company’s reported operating profit may look materially different depending on the accounting method applied.
This may affect:
Performance metrics;
Analysts’ assessments;
Management key performance indicators; and
Bonus arrangements.
Clarity is therefore important before IFRS 18 becomes effective on 1 January 2027.
What Is the IASB Proposing?
The IASB proposes to amend paragraphs 18 and 19 of IAS 28 to clarify that entities whose main business activity is investing in particular types of assets, as described in IFRS 18, may also be eligible to elect the fair value option.
In simple terms:
If investing is the entity’s core business activity, the entity may qualify for the fair value option.
However, the proposed option would remain restricted. It would not be available automatically to all entities holding investments in associates or joint ventures.
Some IASB members disagreed with the proposal and expressed the view that the option should be available to all entities. These alternative views demonstrate that the issue involves an ongoing conceptual and practical debate.
Why Is the Amendment Needed?
The proposed amendment is intended to:
Reduce diversity in the interpretation of the existing requirements;
Promote consistent application internationally;
Align IAS 28 more closely with IFRS 18;
Reduce the risk of performance being presented inconsistently; and
Provide more useful information to users of financial statements.
Accounting is not only about calculating numbers. It is also about faithful representation and comparability.
Without clarification, two entities with substantially similar business models could present their performance differently simply because they apply different interpretations of the eligibility requirements. This would reduce the comparability and usefulness of their financial statements.
What Should Accountants Do Now?
Although the proposal is still an Exposure Draft, accountants and finance professionals should:
Read and understand the proposed amendments;
Assess the potential impact on their organisations or clients;
Consider whether the entity may qualify for the fair value option;
Review policies for classifying and measuring investments in associates and joint ventures; and
Submit comment letters where they have relevant professional views.
The deadline for submitting comments is 20 April 2026.
Accounting standards are developed and improved through professional feedback. Participating in the consultation process is part of the responsibility of the accounting profession.
