IASB Issues Amendments Clarifying the Fair Value Option in IAS 28

IASB Issues Amendments Clarifying the Fair Value Option in IAS 28

On 26 June 2026, the IASB issued targeted amendments to IAS 28 Investments in Associates and Joint Ventures, clarifying the circumstances under which an entity can elect to measure an investment in an associate or joint venture at fair value through profit or loss (FVTPL) in accordance with IFRS 9, rather than applying the equity method.

Background: The Fair Value Option in IAS 28

Under the existing IAS 28.18, an entity that is a venture capital organisation, mutual fund, unit trust, limited partnership, or similar entity (including investment-linked insurance funds) may elect at initial recognition to measure investments in associates or joint ventures at FVTPL. Separately, investment entities as defined by IFRS 10 are also required — rather than permitted — to use FVTPL for their investments.

Despite this apparent clarity, practice had diverged on two key questions:

1. Which entities qualify as similar to venture capital organisations or mutual funds for the purposes of the election? 2. Can the election be revisited if facts and circumstances change after initial recognition — for example, if an entity changes its business model?

The IASB had received requests for guidance through the IFRS Interpretations Committee, and the amendments are the result of that due process.

What the Amendments Clarify

Scope of similar entities: The amendments provide clearer criteria for determining whether an entity qualifies as similar to a venture capital organisation or mutual fund. The key characteristic is that the entity manages investments on a fair value basis as its primary business activity and evaluates performance of those investments by reference to fair value. This functional test resolves ambiguity for entities such as family offices, private equity funds, and certain insurance subsidiary structures.

Irrevocability of the election: The amendments confirm that the FVTPL election under IAS 28.18 is made at initial recognition of each investment and is irrevocable on an investment-by-investment basis. An entity may not retroactively elect FVTPL measurement after the equity method has been applied, even if its business model changes subsequently.

Partial application by an investment entity parent: Where a non-investment-entity parent has a subsidiary that is an investment entity, the amendments clarify how the IAS 28.18 election interacts with the consolidation requirements under IFRS 10 and whether the parent may elect FVTPL for the associate held through that subsidiary.

Why This Matters in Practice

The equity method and FVTPL produce materially different results. Under the equity method, profit or loss is recognised as the investor's share of the associate's post-acquisition profit or loss — a figure that depends on the associate's reported earnings. Under FVTPL, profit or loss reflects changes in the fair value of the investment, which is more relevant for entities whose business model is return through capital appreciation rather than operational participation.

For investment funds and venture capital structures in particular, the equity method can produce results that are misleading to investors: it forces recognition of an investee's accounting profits (which may be unrelated to how the fund evaluates performance) rather than the market or model value that the fund reports to its own investors.

Effective Date

The IASB has not yet confirmed the mandatory effective date for these amendments. Early application is expected to be permitted from the date of issue. Entities that currently apply the FVTPL election or are considering doing so should assess whether the amended criteria affect their eligibility and review disclosures accordingly.

Who Is Affected?

• Venture capital organisations and private equity funds holding significant influence stakes
• Mutual funds, unit trusts, and limited partnerships with investments accounted for under IAS 28
• Investment entities under IFRS 10 with associates or joint ventures
• Groups with mixed structures — investment entity subsidiaries held by non-investment-entity parents
• Insurance companies with investment-linked funds that hold associates