EFRAG draft comment letter on amendments regarding the application of the investment entities exemption

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21 Jul, 2014

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the proposed amendments to IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures'. The proposed amendments aim at addressing issues that have arisen in relation to the exemption from consolidation for investment entities.

The IASB proposes in ED/2014/2 Investment Entities: Applying the Consolidation Exception (Proposed amendments to IFRS 10 and IAS 28) amendments aimed at clarifying the following aspects:

  • Exemption from preparing consolidated financial statements. The suggested amendments confirm that an entity can apply the consolidation exemption even if its parent entity measures its subsidiaries at fair value in accordance with IFRS 10.
  • A subsidiary providing services that relate to the parent's investment activities. A subsidiary that provides services related to the parent's investment activities should not be consolidated if the subsidiary itself is an investment entity.
  • Application of the equity method by a non-investment entity investor to an investment entity investee. When applying the equity method, a non-investment entity investor in an investment entity retains the fair value measurement applied by the associate to its interests in subsidiaries, unless the non-investment entity investor is a joint venturer where the joint venture is an investment entity.

In its draft comment letter, EFRAG supports the first two proposals but disgrees with the third. In EFRAG's view, IAS 28 should be consistent with the principles supporting IFRS 11. In particular, EFRAG notes that the unit of account is the investment in the associate or joint venture, not the individual assets and liabilities of the investee. Therefore, EFRAG believes that IFRS 10 is not relevant.

Comments on the draft comment letter are due by 5 September 2014. It is availble on the EFRAG website.

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