In its Exposure Draft, the IASB proposed three changes to IAS 28 and IFRS 10:

• 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.

The FRC supports the proposed amendment regarding exemption from preparing consolidated financial statements.

Consolidation of a subsidiary providing services that relate to the parent's investment activities

The FRC disagrees with this proposed amendment. They are concerned that the limitation proposed will lead to important information being lost and result in economically identical group structures being reported in different ways based on legal form. They also note that evidence from constituents indicates that the IASB proposal would reduce the transparency of information in respect of investments, leverage and operational efficiency in investment entity groups, which is not consistent with the expressed needs of investors.

The FRC proposes instead that consolidation of all investment entity subsidiaries, regardless of whether they provide investment services or not, should be required, which in its view would ensure that fair value measurement is applied where it is most useful (i.e. to underlying investments) whilst retaining detailed information on the performance of investment services.

Application of the equity method by a non-investment entity investor to an investment entity investee

In relation to these amendments, the FRC partly supports the IASB's proposals but partly disagrees. It believes that a non-investment entity investor should, when applying the equity method, retain the fair value measurements used for investments in subsidiaries by an investment entity associate or joint venture. This is different to the IASB's position which would mandate this treatment for investments in subsidiaries held by associates but forbid it for joint ventures.

The FRC's position is based on its view, expressed to the IASB when responding to the original consultation on the investment entities amendments, that a non-investment entity parent should not be required to consolidate the subsidiaries of its own investment entity subsidiary. Consistent with that view, they consider that the fair value of an investment entity’s subsidiaries provides the most useful information irrespective of whether the reporting entity’s interest in the investment entity is that of an associate or a joint venture.

The full comment letter can be accessed from the FRC website.