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Plain‑English explainer of HKAS 28 / IAS 28 for students, junior accountants and non‑specialists who find official standards too dense to read.
This article is based on Hong Kong Accounting Standards (HKAS / HKFRS), which are fully aligned with IAS / IFRS except for minor local tweaks, so the same principles generally apply under IAS / IFRS unless noted otherwise. The goal is to unpack HKAS 28 Investments in Associates and Joint Ventures (equivalent to IAS 28) using plain English and practical, real‑life examples instead of technical jargon. It is written for students, junior accountants, audit juniors and finance professionals who want to understand not just “what the standard says” but how to actually read and prepare financial statements in line with it.
When you see “the company” or “the entity” below, you can think of any entity that prepares general purpose financial statements under HKFRS / IFRS.
When “Selling Shares” Is More Than Just Selling Shares
In Hong Kong listed company annual reports, it is common to see announcements like:
- “The group sold part of its interest in a subsidiary.”
- “The group reduced its stake in an associate.”
- “The group no longer consolidates Company X and now measures it at fair value.”
For a casual reader, it is tempting to stop at “sold X% of shares” and think it is purely about how much gain or loss is booked. Under HKFRS / IFRS, the more important questions are:
- Did the company lose control of a subsidiary?
- Or did it simply lose significant influence or joint control over an associate or joint venture?
- After the transaction, should the remaining interest be accounted for using the equity method or as a financial asset under HKFRS 9 / IFRS 9?
In this article, we put “loss of significant influence / joint control” under HKAS 28 (equivalent to IAS 28) side by side with “loss of control” under HKFRS 10 (equivalent to IFRS 10) on a single timeline. You will see when to stop using the equity method, when to stop consolidating, how to remeasure retained interests, and how to deal with OCI recycling.
What You Should Be Able To Do After Reading?
By the end, you should be able to:
- Tell the difference between control, significant influence and joint control, and know which standard to use in each case (HKFRS 10 / HKAS 28 / HKFRS 11 / HKFRS 9).
- Apply the basic steps when you lose significant influence or joint control under HKAS 28: when to stop the equity method and how to deal with remeasurement and reclassification.
- Explain what happens when you lose control of a subsidiary under HKFRS 10: deconsolidation, fair value for any retained interest and OCI recycling.
- See the main similarities and differences between these two situations, especially around retained interests, fair value measurement and profit or loss.
- Follow a simple “subsidiary → associate → financial asset” storyline to link the whole investment life cycle, and use it to avoid mixing up HKFRS 10 events with HKAS 28 events in exams or working papers
1. Where Are You on the Control–Influence Line?
To understand “what you lose”, you first need to know “what you had”. In the current financial reporting framework, you can roughly draw a line of involvement like this:
Financial asset (HKFRS 9 / IFRS 9) ← Associate / joint venture (HKAS 28 / HKFRS 11 – IAS 28 / IFRS 11) ← Subsidiary (HKFRS 10 / IFRS 10)
- Control The investor has power over the relevant activities, exposure or rights to variable returns, and the ability to affect those returns. The investee is a subsidiary, and HKFRS 10 / IFRS 10 requires full consolidation.
- Significant influence The investor can participate in financial and operating policy decisions but does not have control or joint control. Typically an associate, accounted for using the equity method under HKAS 28 / IAS 28.
- Joint control Strategic decisions require unanimous consent of two or more parties, resulting in a joint venture or joint operation under HKFRS 11 / IFRS 11. Most joint ventures are accounted for using the equity method under HKAS 28 / IAS 28.
As you move from left to right, the level of power increases and accounting moves from financial asset → equity method → full consolidation. This article focuses on moving backwards along that line—what happens when you lose control, or lose significant influence / joint control.
2. Losing Significant Influence or Joint Control – HKAS 28 Stops the Equity Method
Under HKAS 28 / IAS 28, when the investor no longer has significant influence or joint control, it must stop applying the equity method. This loss can arise from:
- Selling part of the holding so that the remaining interest is no longer enough to maintain significant influence.
- No share sale, but new investors arrive and dilute your influence.
- Changes in contractual terms or board representation that remove your ability to participate in key decisions.
Once you conclude that significant influence / joint control is lost, HKAS 28 / IAS 28 requires:
- Stop the equity method On the date of loss, record your share of profit or loss and OCI up to that date and then stop recognising further share of results or OCI.
- Reclassify the retained interest Any remaining stake is usually a financial asset under HKFRS 9 / IFRS 9 and will be measured at FVPL or FVOCI, depending on the business model and election.
- Remeasure the retained interest at fair value The fair value on that date is treated as the “new” initial measurement under HKFRS 9 / IFRS 9.
- Recognise a gain or loss Add together:
- The consideration received from any sale, plus
- The fair value of the retained interest. Then compare this total with the carrying amount of the entire equity‑accounted investment immediately before loss of significant influence. The difference is recognised in profit or loss.
In substance, at the moment you lose significant influence, it is as if you “sold the entire associate” and then “reinvested” in the remaining shares at fair value under HKFRS 9 / IFRS 9.
3. Losing Control – HKFRS 10 Stops Consolidation
If you start from a subsidiary, the change is even more dramatic. Under HKFRS 10 / IFRS 10, losing control is not just about percentage; it is about whether you still:
- Have power over relevant activities.
- Have exposure to variable returns.
- Can use your power to affect those returns.
When you lose control, you must:
- Stop consolidating the subsidiary Remove all of the former subsidiary’s assets, liabilities and non‑controlling interests from the consolidated financial statements.
- Recognise the fair value of consideration received Measure cash, other assets, and any contingent consideration at fair value.
- Remeasure any retained interest If you still hold a stake (for example, you go from 80% to 30%), measure this retained interest at fair value on the date control is lost.
- If the retained interest is now an associate or joint venture, that fair value becomes the initial cost under HKAS 28 / IAS 28.
- If it is just a financial asset, that fair value becomes the new initial measurement under HKFRS 9 / IFRS 9.
- Deal with OCI Reclassify or transfer to profit or loss any OCI items relating to the subsidiary as required by the relevant standards (for example, foreign currency translation differences often move to profit or loss as part of the disposal gain or loss).
Losing control is treated as a major economic event: effectively, you have disposed of the subsidiary, and from that date you must redefine your role—either as an associate‑level investor, a joint venturer, or simply a holder of a financial asset.
4. Remeasuring Retained Interests – Similar Rules, Different Scale
Seen side by side, HKAS 28 / IAS 28 and HKFRS 10 / IFRS 10 share a common approach to retained interests, but with important differences.
Common Ground
In both cases:
- On the date you lose the previous “status” (control or significant influence / joint control), you remeasure any retained interest at fair value.
- That fair value becomes the new starting point under the next standard:
- HKAS 28 / IAS 28 if you move from subsidiary to associate / joint venture.
- HKFRS 9 / IFRS 9 if you end up with a pure financial asset.
Key Differences
- Magnitude of change
- Under HKFRS 10 / IFRS 10, you move from full consolidation to equity method or financial asset. You stop including all of the subsidiary’s assets, liabilities, income and expenses.
- Under HKAS 28 / IAS 28, you move from equity method to financial asset. The change is smaller because there was never consolidation in the first place.
- Scope of what is unwound
- HKFRS 10 / IFRS 10 involves derecognising the subsidiary’s entire balance sheet and non‑controlling interests.
- HKAS 28 / IAS 28 deals with just a single line investment and the related OCI balances.
You can think of it like this:
- Losing control is like stepping down from being owner‑manager to being just an investor.
- Losing significant influence is like resigning from the board and becoming a pure financial investor.
5. OCI Recycling – From Equity Method to Financial Asset vs From Subsidiary to Non‑Subsidiary
Another important piece is how other comprehensive income (OCI) is “moved” or recycled when the relationship changes.
Under HKAS 28 / IAS 28 – Losing Significant Influence / Joint Control
When you lose significant influence or joint control, any OCI that relates to the associate or joint venture needs to be handled based on what would happen if the underlying asset or liability were disposed of by the investee itself.
In practice:
- If the underlying item would recycle to profit or loss on disposal (for example, many foreign currency translation differences), then the investor reclassifies the related OCI to profit or loss when it loses significant influence.
- If the underlying item would not recycle (for example, some equity instruments designated at FVOCI), then the OCI is not taken to profit or loss but may be reclassified within equity as required by the relevant standard.
Under HKFRS 10 / IFRS 10 – Losing Control
When you lose control of a subsidiary, that event is treated as a disposal of the subsidiary. As a result:
- Many OCI balances linked to the subsidiary—especially foreign currency translation reserves—are reclassified to profit or loss as part of the overall gain or loss on disposal.
- For items measured under FVOCI, whether or not they recycle depends on their specific IFRS classification.
To avoid confusion in practice, always ask two questions:
- If the underlying asset or liability were sold directly, would its OCI be recycled?
- If yes, then recycle the related OCI when you lose control or significant influence; if no, follow the specific standard (often “no recycling”).
6. Partial Disposals Without Losing Control or Significant Influence
Not every share sale triggers loss of control or significant influence.
Under HKFRS 10 / IFRS 10 – Still a Subsidiary
If you sell part of your interest in a subsidiary but still control it afterwards (for example, from 80% down to 60%), then:
- The transaction is treated as an equity transaction between the parent and non‑controlling interests.
- You do not recognise a gain or loss in profit or loss.
- You do not remeasure the retained interest at fair value.
- You simply adjust the parent’s and non‑controlling interests’ shares in equity.
Under HKAS 28 / IAS 28 – Still an Associate / Joint Venture
If you sell part of your interest in an associate but still have significant influence (for example, from 40% down to 30%), then:
- You continue to apply the equity method.
- You do not remeasure the remaining interest at fair value solely because of the partial sale.
Only when the transaction causes you to cross the boundary—losing control (HKFRS 10 / IFRS 10) or losing significant influence / joint control (HKAS 28 / IAS 28)—do you trigger fair value remeasurement and OCI recycling.
7. When a Subsidiary Becomes an Associate or Joint Venture – HKFRS 10 and HKAS 28 “Pass the Baton”
This is a classic two‑standard relay.
Step 1: Subsidiary → Associate / Joint Venture
Example: The parent holds 80% of B (a subsidiary). It sells down to 30% and now only has significant influence.
First, apply HKFRS 10 / IFRS 10 for loss of control:
- Deconsolidate B’s assets and liabilities.
- Recognise the fair value of consideration received.
- Remeasure the retained 30% interest at fair value.
- Recognise the overall gain or loss in profit or loss.
- Reclassify any relevant OCI balances as required.
Then, that 30% fair value becomes the initial cost of a new associate under HKAS 28 / IAS 28, and you start applying the equity method from that point onwards.
Step 2: Associate ↔ Joint Venture
Later, the relationship between investors may change so that the investment moves between “associate” and “joint venture” status—for example, from significant influence to joint control, or vice versa.
In these cases:
- You stay within HKAS 28 / IAS 28.
- You continue using the equity method.
- You do not remeasure the investment at fair value, because the overall level of involvement (non‑controlling but participatory) is essentially the same.
So:
- Subsidiary → associate / joint venture = big event, remeasurement required.
- Associate ↔ joint venture = governance reshuffle, no fair value “big bang”.
8. A Full Story – Subsidiary → Associate → Financial Asset
To tie this together, consider a simplified life‑cycle story.
Phase 1 – Subsidiary (Control)
Company A buys 80% of Company B. B is a subsidiary. A consolidates B under HKFRS 3 / HKFRS 10 / IFRS 3 / IFRS 10, including B’s assets, liabilities, income and expenses line by line.
Phase 2 – Lose Control, Keep Significant Influence
A sells 50% of B and is left with 30%. A no longer controls B, but now has significant influence, so B becomes an associate.
Under HKFRS 10 / IFRS 10, A:
- Derecognises B’s assets and liabilities from consolidation.
- Recognises the fair value of the consideration received.
- Remeasures the retained 30% at fair value.
- Recognises the resulting gain or loss in profit or loss.
- Recycles or transfers relevant OCI.
Then, under HKAS 28 / IAS 28, that 30% fair value is treated as the initial carrying amount of an associate, and A now uses the equity method.
Phase 3 – Lose Significant Influence, Become a Financial Investor
Later, A sells down further or loses board representation, ending with 10% and no significant influence.
Under HKAS 28 / IAS 28, A:
- Stops applying the equity method.
- Remeasures the 10% at fair value and treats it as a financial asset under HKFRS 9 / IFRS 9.
- Recognises any difference between (a) the sum of consideration received plus fair value of the retained 10% and (b) the previous carrying amount of the equity‑accounted investment in profit or loss.
- Deals with any remaining OCI balances as required.
The investment has now travelled the full route: subsidiary → associate → financial asset, and you can see how HKFRS 10, HKAS 28 and HKFRS 9 “hand over” responsibility at each stage.
Key Takeaways for Students and Junior Accountants
- Before you look at percentages, always ask: Do we have control, joint control, significant influence, or neither? The answer drives whether HKFRS 10, HKAS 28 or HKFRS 9 applies.
- A partial disposal only triggers fair value remeasurement when you cross a boundary: losing control (HKFRS 10 / IFRS 10) or losing significant influence / joint control (HKAS 28 / IAS 28).
- When you lose control or significant influence, remeasure retained interests at fair value, recognise gains or losses, and then move into the next standard (HKAS 28 or HKFRS 9) with that fair value as the new starting point.
- Treat OCI carefully: ask whether each OCI item would recycle on disposal of the underlying asset, and mirror that behaviour when you lose control or significant influence.
- When reviewing working papers or exam questions, map the fact pattern onto the “life‑cycle path”: subsidiary → associate / joint venture → financial asset, and identify exactly which step the transaction represents.
- In tricky borderline cases, document why you think control or significant influence is lost (or not lost); that judgement often matters more than the precise percentage.
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