Date recorded:

Sweep issue: Accounting by the parent of an investment company

The IASB agreed that the IFRS on Consolidation would address the situation in which a controlled investee of a consolidated investment company holds an equity interest in the ultimate parent. Currently, under IFRS, the investment in the parent held by the investee would be treated as treasury shares in the Parent's consolidated financial statements. Whether this treatment should be retained if the investee was accounted for at fair value was unclear. The FASB would not address this issue specifically: in their view, there was existing guidance in US GAAP and facts and circumstances would determine the appropriate accounting treatment.

In a supplemental vote, the IASB agreed (12 in favour) the parent of an investment company would consolidate all controlled investees, including those held by investment company subsidiaries. The fair value accounting applied by the investment company subsidiary to its investment in the Parent when the Parent entity prepares its consolidated financial statements would be prohibited.

Agency relationships: Regulated funds

The Boards discussed the appropriate consolidation conclusions when a fund being managed is governed strictly by law or regulation to ensure that the fund is operated in the best interests of all investors.

The Boards considered an example in which the reporting entity establishes a mutual fund and acts as the fund manager, selling units in the fund to external investors. Although the fund manager determines the type of fund, the parameters of the fund within which the fund manager operates are determined by regulation.

After a short discussion, the Boards agreed unanimously that restrictions placed on a fund manager's decision-making authority by law or regulation would not prevent the fund manager from controlling (and thus consolidating) the fund.

Separate presentation/ Transition guidance

The Boards did not have time to discuss papers on whether any or all of the elements of a consolidated entity should be permitted or required to be classified separately from other elements in a reporting entities' consolidated financial statements; and proposed transition requirements when a reporting entity concludes, when transitioning to the new Standard on consolidation, either that consolidation of a previously unconsolidated entity, or discontinuing consolidation of a previously consolidated entity is appropriate. These papers will be discussed by the Boards separately and only if the conclusions differ will they be discussed at a joint meeting.

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