Approved Interpretation I-53: Valuation of Securities and Equity Interests Using the Equity Method in Individual Financial Statements

The National Accounting Council (NAC) has approved Interpretation I-53, which addresses the valuation of securities and equity interests using the equity method (ekvivalence) in the individual financial statements of business entities.

We are proud to share that this interpretation was drafted by our colleague, Alice Štěpánková Šrámková.

Addressing Reporting Inconsistencies

The interpretation focuses on the application of the equity method in financial statements, as several different approaches and reporting methods are currently in use.

The core principle established is that upon initial acquisition, a security or equity interest should be valued at its acquisition cost. Subsequently, this cost should be adjusted to reflect:

• The share in the change in equity between the acquisition date and the valuation date.

• The amortization of "goodwill" (or the difference between the acquisition cost and the share in the fair value of acquired assets and liabilities as of the date of acquisition).

Alignment of Accounting Methods

The interpretation further clarifies that the equity of the entity under significant influence must be maintained using the same accounting methods as those of the reporting entity.

In practice, if a Czech reporting entity holds an equity interest in a foreign company, it must evaluate whether the reported equity of that foreign subsidiary is based on the same principles applied under Czech accounting regulations. If differences exist, adjustments may be necessary to ensure consistency.

In addition to the procedural framework for applying the equity method, the document includes several illustrative examples to guide practitioners.

The full text of Interpretation I-53 is available on the NAC website at www.nur.cz.

This text was translated by AI.