FRS 102 Section 14 Investment in Associates  

There have been limited changes to FRS 102 Section 14 Investment in Associates following the 2024 periodic review. The amendments include updates to indicators for the existence of significant influence along with other minor changes.

Why does associate accounting matter under FRS 102? 

Accounting for associates under FRS 102 is designed to reflect the economic substance of influence while allowing flexibility in standalone accounts. These investments can have a material effect on financial results, making it essential to understand both the accounting options available and the associated reporting requirements.

Accounting for associates under FRS 102 Section 14

The accounting treatment depends on the type of financial statements being prepared.

 

In group consolidated financial statements, investments in associates are accounted for using the equity method. This means the investment is initially recognised at cost and subsequently adjusted for the investor’s share of the associate’s profits, losses and other movements in equity. As a result, the performance of the associate is reflected in the group’s reported results.

In individual financial statements, investments in associates are not accounted for using the equity method. Instead, they are measured at cost less impairment or at fair value, with changes recognised in profit or loss or other comprehensive income.

Under this cost model, income is typically recognised only when distributions are received. This difference can significantly affect reported earnings and key metrics.

FRS 102 equity method: key practical considerations 

• Businesses should be aware of several important aspects when accounting for associates.
• Dividends received reduce the carrying value of the investment under the equity method.
• Losses are recognised only to the extent of the investment, unless additional obligations exist.
• Transactions with associates may require elimination of unrealised profits.
• Investments must be reviewed for impairment where indicators arise. 

These areas often require judgement and ongoing monitoring, particularly where the associate is performing poorly or where transactions between the entities are significant. 

Changes in significant influence under FRS 102 

If an investor gains or loses significant influence, the accounting treatment must change.

For example, where significant influence is lost, the equity method is discontinued and the investment is remeasured in accordance with sections 11 and 12, with any resulting gain or loss recognised in profit or loss.