Investment Entities: Some Proposed Clarifications


The IASB has issued Investment Entities: Applying the Consolidation Exception, an exposure draft of proposed amendments to IFRS 10 and IAS 28, with comments to be received by September 15, 2014. The exposure draft reflects issues that have arisen in applying the IASB's important conclusion, effective since the beginning of 2014, that an investment entity doesn't consolidate its subsidiaries or apply IFRS 3 when it obtains control of another entity; instead, such an entity measures an investment in a subsidiary at fair value through profit or loss in accordance with IFRS 9. The investment entity exception is of course vitally important to that industry and was crucial in allowing the Canadian Securities Administrators to conclude that investment entities could and should make the transition to reporting under IFRS, several years after most other publicly-accountable entities. The highly specific issues addressed in the exposure draft, flowing from questions originally put to the IFRS Interpretations Committee, will generally be of narrower interest, presumably affecting only a small number of investment entities.

Exemptions from consolidation

One of these issues really relates to non-investment entities and to applying the broader exemption from presenting consolidated financial statements, provided by IFRS 10 for a parent entity meeting certain criteria. One of the criteria is that the entity's "ultimate or any intermediate parent produces consolidated financial statements that are available for public use and comply with IFRS." It's not necessarily clear whether an entity that's not an investment entity can take advantage of the exemption when it has an investment entity parent that produces consolidated financial statements in which the entity itself and all its holdings are measured at fair value: that is, does the exemption depend on being able to demonstrate that consolidated financial statements have been prepared and made available somewhere in the structure? The exposure draft proposes to clarify that the exemption is available in this situation. The IASB observed among other things: "When an investment entity measures its interest in a subsidiary at fair value, the disclosures required by IFRS 12 Disclosure of Interests in Other Entities are supplemented by those required in IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurement. Accordingly, the IASB decided that this combination of information provides...

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