AS 23 (Accounting for Investments in Associates in Consolidated Financial Statements) is the Indian Accounting Standard that prescribes how to account for investments in associates when preparing consolidated financial statements.

The Institute of Chartered Accountants of India (ICAI) issued AS 23 under the Companies (Accounting Standards) Rules, 2006. It became mandatory from 1 April 2002 for Level I enterprises. The standard reaffirmed its position through the Companies (Accounting Standards) Rules, 2021 and replaced the earlier ICAI accounting guidance from November 2001.

For FY 2026-27, family-owned business groups often encounter cross-holdings that create associate relationships. Applying the equity method under AS 23 ensures group earnings are properly reflected in consolidated financial statements while standalone accounts show only dividend income.

AS 23 at a Glance

AS 23 requires entities to use the equity method when accounting for investments in associates within consolidated financial statements. This standard primarily serves Level I enterprises preparing group accounts under Section 129(3) of the Companies Act, 2013.

What is AS 23: Accounting for Investments in Associates in Consolidated Financial Statements?

AS 23 sets out how a parent entity must account for its investments in associates when preparing consolidated financial statements. The core principle is that entities with significant influence over another enterprise must reflect their share of that associate’s net assets and results using the equity method.

ICAI introduced this standard to align Indian group reporting with international best practices and ensure comparability across companies. Its requirements are broadly consistent with IAS/IFRS standards but tailored to Indian regulatory context and reporting needs.

Chartered accountants, statutory auditors, CFOs and finance teams working on group accounts refer to this standard whenever an associate relationship exists within their corporate structure.

Objective of AS 23

The objectives of AS 23 are:

• Prescribe principles and procedures for accounting for investments in associates in consolidated financial statements.
• Specify the equity method of accounting for associates.
• Establish disclosure requirements for associate investments.

These objectives ensure that users of consolidated financial statements receive a true and fair view of group performance and position as required by Section 129 of the Companies Act, 2013. Proper application allows stakeholders to assess both direct and indirect economic interests held by a parent company through its associates.

Who Must Apply AS 23?

Entities covered, applicability table

AS 23 applies primarily to Level I enterprises required to prepare consolidated financial statements under Section 129(3) of the Companies Act, 2013. It is recommended but not mandatory for Level II and III enterprises.

For Ind AS roadmap:

Phase I/II/III companies must apply Ind AS 28 instead.

Scope exclusions

The following items are excluded from the scope of AS 23:

• Investments in associates accounted for in standalone (separate) financial statements, covered by AS 13.
• Investments in subsidiaries, covered by AS 21.
• Investments in joint ventures, covered by AS 27.
• Investments held by venture capital funds or mutual funds measured at fair value.

When the standard does not apply

If an investment is held only on standalone books or does not constitute significant influence, it falls under other standards:

• Standalone treatment follows AS 13.
• Subsidiaries require consolidation per AS 21.
• Joint ventures follow proportionate consolidation under AS 27.
• Fair value investments by funds fall outside this standard’s ambit entirely.

Key Definitions under AS 23

Recognition and Measurement under AS 23

When to recognise

An entity recognises an investment as an associate when it holds significant influence over another enterprise but does not control it or jointly control it as a joint venture. Under Para 5 of AS 23, significant influence is presumed if holding at least twenty percent voting power directly or indirectly unless clear evidence rebuts this presumption.

Significant influence can also arise even with less than twenty percent holding if there is representation on the board of directors; participation in policy-making processes; material transactions between investor and investee; interchange of managerial personnel; or provision of essential technical information.

If these indicators exist, an entity must classify such investment as an associate and apply equity method accounting within its consolidated financial statements.

Initial measurement

At acquisition date, the investor records its investment at cost within the consolidated accounts. This cost is split into two components:

The investor’s share of equity/net assets at acquisition.

Any excess paid over this share is classified as goodwill; if paid less than share received, a capital reserve arises.

Goodwill arising on acquisition remains embedded within carrying amount but must be disclosed separately if material. Goodwill is not amortised but tested periodically for impairment per AS 28.

**Formula:**

Carrying amount at initial recognition = Cost of investment

Goodwill = Cost, Investor’s share of net assets at acquisition

Capital reserve = Investor’s share, Cost (if negative goodwill)

Subsequent measurement

After initial recognition:

The carrying amount increases or decreases each period to reflect investor’s proportionate share of post-acquisition profits/losses reported by associate.

Other comprehensive income items attributable to investor are also adjusted where relevant.

Dividends received from associate reduce carrying amount but do not affect profit/loss recognised.

If investor’s share of losses equals or exceeds carrying amount (including long-term interests), further losses are not recognised unless there is a legal or constructive obligation to do so.

Goodwill embedded within investment is subject only to impairment review per Para 16 and not amortisation schedule.

If significant influence ceases (for example due to disposal or loss of rights), application of equity method stops prospectively from that date.

All adjustments must align accounting policies between parent and associate as far as practicable per Para 14-15.

Equity Method as Mandated by AS 23 in CFS

AS 23 mandates use of equity method only within consolidated financial statements (“CFS”). In standalone accounts prepared by parent/investor company itself, investments are carried strictly per cost model prescribed by AS 13 less any impairment provisions required.

This distinction between CFS and standalone reporting sets Indian GAAP apart from Ind AS 28 which applies equity method more broadly including certain separate FS situations under Ind AS 27 options.

Equity method procedure involves:

Starting with opening cost,

Adding investor’s share post-acquisition reserves,

Adding current period net result,

Deducting distributions/dividends,

Testing embedded goodwill annually via impairment review,

Adjusting carrying amount accordingly each reporting period.

Where reporting dates differ between parent and associate entities, maximum six-month gap permitted per Para 21 provided adjustments are made for material transactions/events occurring during intervening period.

Failure to apply these steps precisely remains one of most common errors observed during statutory audits conducted by Patron's clients across manufacturing sector groups.

Worked Examples on AS 23

Example 1: Equity method - first-year application

Maharashtra Holdings acquired thirty-five percent stake in Maharashtra Logistics Ltd on April 1st 2025 paying Rs 14 crore when net assets stood at Rs 36 crore (35% = Rs 12.60 crore). Maharashtra Logistics reported Rs 6 crore profit during FY 2025-26.

Computation Table

Journal Entry

CFS journal:

Dr Investment in Associate Rs 2.10 crore

Cr Share of Profit from Associate (P&L) Rs 2.10 crore

Standalone books remain unchanged at Rs 14 crore per cost model under AS 13.

Example 2: Significant influence below twenty percent

Sundaram Capital owns fifteen percent stake in Sundaram FinTech but holds two out seven board seats with active involvement over policy decisions, clear evidence supporting significant influence despite sub-twenty percent holding threshold per Para 5.

Computation Table

Journal Entry

CFS adjustment:

Dr Investment in Associate

Cr Share of Profit/Loss from Associate

Dividend receipts reduce carrying amount annually; rationale behind treating Sundaram FinTech as associate must be disclosed clearly due to holding below twenty percent threshold per Para 5 requirements.

Disclosure Requirements under AS 23

Disclosures under AS 23 are critical for transparency in consolidated financial statements, as mandated by Schedule III to the Companies Act, 2013. The standard requires detailed information about associates, the equity method, and the basis for significant influence, enabling users and auditors to assess group relationships and exposures.

Statutory auditors must verify these disclosures as part of their reporting responsibility under SA 700 to ensure compliance and fair presentation.

Common Mistakes & Industry-Specific Considerations

Common errors auditors flag

• Applying equity method in standalone financial statements (only required in CFS under AS 23)
• Failing to identify significant influence below 20% holding
• Not adjusting for differences in accounting policies between investor and associate
• Continuing equity method after loss of significant influence
• Recognising losses beyond carrying amount without legal/constructive obligations
• Misclassifying joint ventures as associates (joint ventures fall under AS 27)

Industry application notes

Family-owned business groups often create associate relationships through cross-holdings among group companies. In our audit practice we frequently observe that the equity method in CFS reflects group earnings accurately, while standalone accounts show only dividend income from such investments.

Listed companies with strategic stakes in unlisted partners, such as suppliers or technology partners, often qualify these holdings as associates. Proper disclosure within consolidated financial statements adds transparency for investors and regulators.

Indian mid-market companies with foreign technical collaborators may hold substantial minority stakes (20-49%). AS 23 mandates equity method accounting, sometimes layered with foreign currency translation per AS 11 when the associate is overseas.

AS 23 vs Ind AS 28 vs IFRS: Key Differences

The table below summarises key differences between AS 23 (Indian GAAP), Ind AS 28 (Indian Accounting Standards), and IAS/IFRS:

India’s carve-outs maintain proportionate consolidation for joint ventures under AS 27, whereas Ind AS 28 and IFRS require the equity method. Standalone financial statement treatment also differs: Indian GAAP uses cost less impairment per AS 13, while Ind AS allows either cost or equity method.

Latest Amendments to AS 23 (FY 2026-27)

No amendments have been notified to AS 23 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.

Related Standards You Should Know

• [Ind AS 28](/ind-as-28-investments-in-associates/), Equivalent associates standard for Ind AS-applicable companies; broader scope including joint ventures.
• [AS 21](/as-21-consolidated-financial-statements/), Subsidiaries (control) vs associates (significant influence); same group of standards.
• [AS 27](/as-27-financial-reporting-of-interests-in-joint-ventures/), Joint ventures - proportionate consolidation under AS 27 (different from equity method under AS 23).
• [AS 13](/as-13-accounting-for-investments/), Standalone financial statement treatment of associate investments.
• [AS 28](/as-28-impairment-of-assets/), Impairment of investment in associate.

Need Help with AS 23 Compliance?

Patron Accounting LLP supports Indian groups with every aspect of AS 23 compliance. Our team brings hands-on experience across sectors, ensuring your consolidated accounts meet ICAI, MCA, and NFRA requirements.

Our services include:

• Statutory Audit
• Financial Reporting & Schedule III
• Disclosure Review
• Ind AS Advisory

Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.

About This Article

Reviewed by CA & CS Team · Patron Accounting LLP

Technical reviewer: CA Sundram Gupta, FCA

Last reviewed: 2026-05-02

Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021)) · IFRS Foundation