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IFRS 10 - Investment entity subsidiary that provides investment-related services

Date recorded:

The amendments to IFRS 10 require an investment entity to measure its investments in subsidiaries at fair value apart from where a subsidiary provides investment-related services or activities, in which case the investment entity shall consolidate the subsidiary. The issue relates to the accounting treatment where a subsidiary is itself an investment entity but also provides investment related services or activities; should the parent measure that subsidiary at fair value or consolidate it. Specifically, should the parent consolidate the investment portfolio on a line-by-line basis, or should the parent measure the entire portfolio and the related third party debt held at fair value.

Staff performed outreach and summarised the findings in their paper. From their analysis into the Standard, Staff think it is not clear how to account for a subsidiary that is both an investment entity subsidiary and provides investment-related services. Therefore Staff recommended the Committee add this issue onto its agenda.

A member agreed with Staff’s analysis that there is a lack of clarity regarding hybrid entities. The member confirmed this is an issue in the industry. In the Staff paper the approach adopted by Staff is to have the same accounting treatment for all of these sorts of structures however this may not be possible as they may be other elements which would need to be considered such as non-controlling interests.

Another member also agreed with staff analysis but was confused with paragraph 15 where the entities in structure one and two are not the same as those in structure three. He agreed with staff that adding clarity would be helpful.

Another member said it would be helpful to clarify the extent to which investment services would have to be provided, for them to be consolidated.

Another member added that the Committee should be careful going forward. She is worried about the different sorts of consolidation method that would arise from any amendments staff would give and therefore she would encourage staff to be as simple and as principle-based as possible.

Overall there was general support for Staff’s recommendation.

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