IAS 28 Fair Value Option: What the IFRS 18 Amendments Mean for Your Clients
The IASB has quietly expanded who can measure investments in associates and joint ventures at fair value through profit or loss, and the window to act on that expansion is tied directly to the IFRS 18 transition date. For accounting firms advising groups with investment structures, and for CFOs preparing IFRS financial statements, this is a decision point that carries real presentation consequences. Missing it means waiting for the next opportunity, which may not come.
What the IASB Actually Changed in IAS 28
The amendments revise paragraphs 18 and 19 of IAS 28. Before the change, the fair value option was available only to venture capital organisations, mutual funds, unit trusts, and similar entities. The IASB has now extended eligibility to any company whose specified main business activity (SMBA) under paragraph 49(a) of IFRS 18 is investing in particular types of assets, a concept the standard refers to as "investing in assets."
The IASB has not amended IFRS 18 itself. The changes sit entirely within IAS 28. However, the two standards interact directly: how a company measures its investments under IAS 28 determines where the resulting income and expenses land in the IFRS 18 statement of profit or loss.
The operating versus investing classification split
Under IFRS 18, income and expenses from investments accounted for using the equity method are classified in the investing category of the profit or loss statement, even when those investments are central to the company's main business. By contrast, income and expenses from investments measured at fair value through profit or loss are classified in the operating category, but only if the company both has an SMBA of investing in assets and actually invests in associates and joint ventures as a main business activity under paragraphs 53 and 55 of IFRS 18.
This distinction matters for how analysts, lenders, and investors read a company's financial statements. Moving items from the investing category to the operating category changes headline operating profit figures, affects performance metrics, and may trigger covenant recalculations or rating agency reviews. Firms advising clients on IFRS crypto assets and broader digital asset portfolios should note that the same classification logic applies wherever fair value measurement is elected.
Who Is Newly Eligible and Who Is Not
Companies that gain eligibility
Any entity with an SMBA of investing in assets under paragraph 49(a) of IFRS 18 is now eligible. The IASB gives examples such as investment property companies and insurance companies, but the amendments carry no industry restriction. What matters is whether the entity's principal activity, assessed under IFRS 18's framework, meets the SMBA threshold for investing in assets. Groups operating digital asset treasury strategies or holding tokenised real-world asset portfolios should check whether their SMBA characterisation qualifies them.
Companies already using the fair value option
Entities that already apply the fair value option because they are a venture capital organisation, mutual fund, unit trust, or similar entity are not affected by the amendments. Their existing eligibility basis remains unchanged.
Indirect holdings through subsidiaries
When a parent holds an investment in an associate or joint venture through a subsidiary rather than directly, eligibility for the fair value option turns on the SMBA of the subsidiary that actually holds the investment, not the SMBA of the consolidated group. However, the classification of income and expenses in the consolidated financial statements under IFRS 18 is assessed by reference to the SMBA of the group as a whole. These two assessments can therefore point in different directions within the same group, a complexity that deserves close attention in multi-tier holding structures common in fund-of-funds and infrastructure investing arrangements.
The One-Time Transition Election
The fair value option under IAS 28 is ordinarily locked in at initial recognition of the investment. There is no general mechanism to switch from the equity method once a company has started applying it. The IFRS 18 transition creates a narrow exception: eligible companies can change from the equity method to fair value through profit or loss at the point of initial application of IFRS 18, and that change is applied retrospectively under IAS 8.
Effective date and early application
IFRS 18 is mandatory for annual reporting periods beginning on or after 1 January 2027, and the IAS 28 amendments apply at the same time. Earlier application is permitted, so companies that choose to adopt IFRS 18 ahead of the mandatory date can also make the fair value election early. Any company considering early adoption should factor in the retrospective restatement workload and the disclosure requirements that IAS 8 and IFRS 12 impose alongside the election.
Retrospective application and disclosure obligations
When a company elects to switch to the fair value option on transition, IAS 8 governs the mechanics. That means restating comparatives as though fair value measurement had always applied, unless impracticability applies. IFRS 12 adds further disclosure requirements, including the need to disclose for each material investment whether it is measured under the equity method or at fair value through profit or loss. Audit teams will need to budget for the additional evidence-gathering this requires, particularly where historical fair values for private investments or less liquid positions are difficult to reconstruct.
For firms whose clients hold interests in digital asset funds or blockchain infrastructure ventures structured as associates, this restatement workload intersects with the broader challenge of producing reliable crypto financial statements under IFRS. Robust record-keeping and valuation documentation will be essential.
Separate Financial Statements: An Additional Layer
If a parent elects the fair value option in its consolidated financial statements, it applies the same measurement in its separate financial statements. A change made on IFRS 18 transition in the consolidated statements triggers the corresponding change in the separate statements.
Classification of the resulting income and expenses may still differ between the two sets of statements, because the parent as a standalone reporting entity may have a different SMBA from the consolidated group. This divergence is not an error; it reflects the IFRS 18 rule that classification is always assessed at the level of the reporting entity preparing the statements. Firms should flag this in their client communications to avoid confusion among boards and audit committees that review both sets of accounts.
Practical Steps for Accounting Firms and CFOs
Eligibility assessment
The starting point is determining whether the entity, or any relevant subsidiary in a tiered structure, has an SMBA of investing in assets under IFRS 18 paragraph 49(a). This is an IFRS 18 characterisation exercise, not an IAS 28 one, so it requires working through the IFRS 18 guidance on what constitutes a main business activity and how to apply paragraphs 53 and 55 to specific asset classes.
Presentation impact modelling
Before deciding whether to make the election, companies should model how reclassifying income and expenses from the investing category to the operating category affects key reported metrics: operating profit, EBITDA proxies, earnings per share, and any ratios embedded in debt covenants or regulatory capital calculations. For entities with significant positions in tokenised assets or digital asset joint ventures where crypto ifrs accounting treatment is already under scrutiny, this modelling step is especially important.
Transition planning timeline
With a mandatory effective date of 1 January 2027, companies reporting on a calendar year basis have until their 2027 annual report. But retrospective restatement means the 2026 comparative period must also be restated, so the practical preparation window is now. Firms advising on IFRS 18 adoption should be building the IAS 28 eligibility question into their transition project plans immediately.
The IFAC 2026 International Education Standards and what they mean for accounting practice and the EU ViDA digital reporting roadmap and its implications for financial statement preparation both reflect the broader shift toward greater transparency and precision in financial reporting, a direction these IAS 28 amendments reinforce.
FAQ
Does the IASB plan to remove the remaining restrictions on the fair value option entirely?
Not immediately. The IASB acknowledged that an unrestricted fair value option was debated but decided to keep the option limited to eligible companies for now. It may revisit an unrestricted approach as part of its future work plan, but no timeline has been set.
Can a company elect the fair value option for some investments in associates but not others?
The election is made investment by investment at initial recognition, or on transition to IFRS 18. A company is not required to apply the fair value option to all of its associates and joint ventures; it can elect it selectively, provided it meets the eligibility criteria for each investment where it makes the election.
Does electing the fair value option automatically mean operating category classification under IFRS 18?
No. Operating category classification requires two conditions to be met: the reporting entity must have an SMBA of investing in assets under IFRS 18 paragraph 49(a), and the specific investment in the associate or joint venture must itself be part of that main business activity. If either condition is absent, the income and expenses remain in the investing category despite fair value measurement.
How does the indirect holding rule work in practice for a multi-tier group?
Eligibility for the fair value option in the consolidated accounts turns on the SMBA of the subsidiary that directly holds the associate or joint venture interest. If that subsidiary qualifies, the group can elect fair value measurement for that investment. However, whether the resulting income and expenses go into the operating or investing category in the consolidated profit or loss depends on the SMBA of the consolidated group as a whole, which may be different.
What disclosure is required when a company changes from the equity method to fair value on IFRS 18 transition?
IAS 8 disclosure requirements apply to the change in accounting policy, including the nature of the change, the reason for it, and the quantitative impact on each line of the financial statements. IFRS 12 requires disclosure for each material associate or joint venture of whether it is measured under the equity method or at fair value through profit or loss, so both standards generate disclosure obligations that need to be planned well ahead of the reporting date.
Source: KPMG Digital Assets, Q&A: IAS 28 Fair Value Option for Associates and Joint Ventures