Český finanční a účetní časopis 2013(3):49-61 | DOI: 10.18267/j.cfuc.356

Usage of the equity method in the group containing both direct and indirect relationships between the entities

Marie Zelenková

Ing. Marie Zelenková, Ph.D. - odborná asistentka; Katedra finančního účetnictví a auditingu, Fakulta financí a účetnictví, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67 Praha 3; <zelenm@vse.cz>.

Although the usage of the equity method in the group where the investor exerts a significant influence becomes the standard procedure for the preparation of financial statements for a group, there are still many problems that are not addressed by the national legislation or in international standards as which IFRS may be considered. In the paper, a simple illustrative example describes various solutions of triangular links between the economic units in the group. The fundamental problem in this context appears to be the calculation of the relative (percentage) proportion of ownership interest and, consequently, also the difference between the value of the equity investments (generally valued at cost) and the ownership share of net assets of associates valued at the acquisition date fair value. For the recognition of this difference, it is necessary to take into account not only the amount but also the specific national or international (eg. IFRS) treatment. From the above it follows that different variants of the solution of the group described in the paper might have a significant impact on the final form and explanatory power of the prepared financial statements.

Keywords: Equity method; Investor in associate; International financial reporting standards (IFRS); Significant influence; Associate; Group; Financial statements.

JEL classification: M41

Published: October 1, 2013  Show citation