June 2026

Hey everyone,

Hope you’re keeping well during these asphalt-melting heatwaves. Before we sign off for the summer, let’s take a look at the IFRS headlines from June. The next issue of Reporting Period will be a double one, covering July-August, and will arrive in early September.

We’ll begin with the amended scope of the fair value option for investments in associates and joint ventures, before moving on to the tightly packed agenda from the June meeting of the IFRS Interpretations Committee.

Let’s dive in.

Amendments to the fair value option in IAS 28

The IASB is working to address various application questions regarding the equity method, with the final amendments to IAS 28 expected in H1 2027. However, one sneaky way of avoiding equity method procedures altogether is to apply fair value accounting to investments in associates and joint ventures.

This isn’t an unrestricted accounting policy choice though, but an option in IAS 28.18-19 available exclusively to ‘venture capital organisations, unit trusts, mutual funds and similar entities’. A rather vaguely defined scope, you must admit. Even the European Investment Bank counted itself among those “similar entities” and applied the fair value option to dodge the effort of applying the equity method.

The fair value option is available only at initial recognition of the investment, with one exception: IFRS 18 allows entities to also apply it at the date of initial application of IFRS 18. On this occasion, the IASB issued an amendment to IAS 28 that links eligibility for this option with the assessment of whether the entity has a main business activity of investing in assets under IFRS 18.49(a). The amendments take effect when an entity first applies IFRS 18.

Learn more in EY’s publication.

PS. Did you know that, under US GAAP, the fair value option is available to all entities? I didn’t, but I learned this from the Footnotes Analyst team, who recently highlighted the differences between US GAAP and IFRS when it comes to accounting for investments in other entities.

IFRS Interpretations Committee meeting

The Committee is receiving lots of questions from companies preparing for IFRS 18 – I wonder whether the new members who were recently appointed will soon regret their decisions 😉 Below is a summary of the matters discussed.

MPMs with hypothetical income and expenses

The Committee determined that performance measures that include “hypothetical” income or expenses meet the part of the MPM definition that says MPMs are subtotals of income and expenses.

Hypothetical in this context refers to income and expenses that have not been recognised and may never be recognised in the financial statements. Examples include annualised income or pro-forma results.

Learn more:

Confidential vs public communications

Continuing with the theme of identifying MPMs, the Committee concluded that confidential investor communications are not public communications for the purposes of identifying MPMs. That said, determining when investor communications are still confidential will involve judgement.

The submission received by the Committee revolved around venture-capital and private-equity firms sharing:

  • Investor presentations with existing shareholders, where the shareholder agreement requires confidentiality and limits all disclosures to a restricted group of named shareholders.
  • Investor pitch materials prepared for potential fundraising rounds. These documents are disclosed only under strict NDAs and aren’t made available publicly or circulated to the broader investment community.

Learn more:

Labelling of subtotals

The submitter of the next request had received strong pushback in his jurisdiction against presenting MPMs as P/L subtotals on the face of the statement of profit or loss. We’re talking about subtotals that exclude certain items, usually the unwanted ones, and are labelled as “Recurring operating profit” or “Core operating result” etc. The stakeholders challenging this, presumably auditors and regulators, argued that the labels of such subtotals must explicitly list all the excluded items, which would make them unwieldy for use in investor communications.

Fortunately for preparers, the Committee noted that IFRS 18.B135(a) includes an example of an MPM with a label of “operating profit before non-recurring expenses”. Also, IFRS 18.B135(b) requires an entity to “explain the meaning of terms it uses in its descriptions…for example, explaining how the entity defines non-recurring expenses”, and IFRS 18.43 states that “in some cases, an entity might need to include in the descriptions and explanations the meaning of the terms the entity uses”.

The Committee therefore concluded that the label of a subtotal that is an MPM is not required to explicitly list all the elements excluded from, or included in, the measure.

Learn more:

Mixed presentation of operating expenses

This is the second part of the submission that asked about labelling subtotals, but the Committee decided to split it into a separate agenda decision. Another pressure faced by the submitter concerned a “mixed” presentation of operating expenses, i.e. one in which some operating expenses are classified based on their nature and others based on their function. The question was essentially whether a “mixed” presentation should be used only as a last resort / in very rare circumstances. And the Committee’s answer was a resounding no: a mixed presentation should be used when doing so provides the most useful structured summary of the entity’s operating expenses.

The second question addressed in this agenda decision was whether expenses of the same nature can be split between nature- and function-based presentation. The answer is yes, and such a scenario is discussed in IFRS 18.B82.

Learn more:

Assessment of SMBAs for a manufacturer-lessor

The Committee also looked at a scenario where a vehicle manufacturer sells its products outright but also leases them out. This manufacturer-lessor:

  • manages vehicle sales, finance leases and operating leases together in one line of business;
  • classifies its leases as either finance or operating leases under IFRS 16;
  • enters into a refinancing arrangement with a bank for each lease contract;
  • presents a KPI that is a subtotal for its aggregated lease activity that is similar to gross profit; and
  • includes in that KPI income and expenses from finance leases and operating leases as well as interest expenses on the refinancing arrangements.

The overall question was whether the aggregated lease activity is a specified main business activity (SMBA) of providing financing to customers. The Committee observed that:

  • It’s likely that the aggregated lease activity is a main business activity of providing financing to customers. This is evidenced by the entity’s use of one subtotal for its aggregated lease activity as a KPI (IFRS 18.B34).
  • The classification of some of the leases as operating leases doesn’t preclude the aggregated lease activity from being of a type that provides financing to customers.
  • The list of entities that might provide financing to customers in IFRS 18.B32 isn’t exhaustive.

Learn more:

Income and expenses from cash and cash equivalents

Another agenda decision revolved around classifying income and expenses from cash and cash equivalents under IFRS 18. The submitter asked whether an entity with an SMBA of investing in financial assets should allocate income earned on cash between that activity and other activities, such as manufacturing products.

The Committee concluded that IFRS 18.56(a) requires income and expenses from all cash and cash equivalents to be classified in the operating category if an entity invests in financial assets as an SMBA, regardless of whether it has other main business activities.

Learn more:

Entities providing financing to customers

This agenda decision addressed rather detailed aspects of classifying income and expenses that will be of interest only to entities that have an SMBA of providing financing to customers. In short, the Committee concluded that, in the consolidated financial statements, paragraphs IFRS 18.65-66 apply to the consolidated group as a whole, even when specific subsidiaries do not provide financing to customers as a main business activity.

Learn more:

Control assessment for a single-investor fund

In a break from IFRS 18, the Committee considered whether an entity that is the sole investor in a fund, apart from the fund manager, is automatically deemed under IFRS 10 to have delegated decision-making authority to that fund manager, with the implication that the fund manager is an agent and therefore does not control the fund.

In the fact pattern, the fund manager designed the fund, has extensive authority over its relevant activities, receives a market-based fee, but holds only 0.01% of the fund. The investor holds the remaining 99.99%, was not involved in its purpose and design, cannot withdraw during the fixed term, and has only protective rights.

The Committee noted that all three control criteria in IFRS 10 must be assessed in this scenario, and the investor is not automatically deemed to have control merely because it holds 99.99% of the fund.

Learn more:

Miscellany

Reflections on equity and capital

In a recent blog post, Peter Clark shares his thoughts about common misconceptions about equity and capital in financial reporting. I sometimes find myself coming back to the realisation that total equity doesn’t measure anything other than the difference between the carrying amounts of recognised assets and liabilities.

Things I posted on LinkedIn

For those of you logging in to LinkedIn once a year, or never, I published two posts in June that people found interesting:

That’s all for this edition of Reporting Period. Thanks for reading and enjoy the summer!

Best regards,
Marek