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IASB finalises amendments regarding the application of the investment entities exception

  • IASB document (blue) Image

18 Dec 2014

The International Accounting Standards Board (IASB) has published 'Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)'. The amendments address issues that have arisen in the context of applying the consolidation exception for investment entities. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.

 

Background

In October 2012, the IASB issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) providing an exemption from consolidation of subsidiaries under IFRS 10 Consolidated Financial Statements for entities that meet the definition of an 'investment entity'. Subsequently, the IFRS Interpretations Committee received several submissions regarding the implementation of the exemption. The Committee recommended to the IASB to address the issues in a narrow-scope project, and in March 2014 the IASB formally added a project on IFRS 10/IAS 28 — Investment entity amendments to its work programme. An exposure draft of proposed amendments was published in June 2014 with comments requested by 15 September 2014.

 

Amendments

Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) makes changes aimed at clarifying the following aspects:

  • Exemption from preparing consolidated financial statements. The amendments confirm that the under IFRS 10 exemption from preparing consolidated financial statements for an intermediate parent entity is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all of its subsidiaries at fair value. However, intermediate parent entities adhering to the UK Companies Act 2006 will not be able to take advantage of this exemption.
  • 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 to an associate or a joint venture, a non-investment entity investor in an investment entity may retain the fair value measurement applied by the associate or joint venture to its interests in subsidiaries.
  • Disclosures required. An investment entity measuring all of its subsidiaries at fair value provides the disclosures relating to investment entities required by IFRS 12.

 

Changes from the proposals in the Exposure draft

ED/2014/2 Investment Entities: Applying the Consolidation Exception (Proposed amendments to IFRS 10 and IAS 28) proposed to provide relief to non-investment entity investors for their interests in investment entity associates, but not for their interests in investment entity joint ventures. To retain consistency in treatment in applying the equity method to both associates and joint ventures, the final amendments provide relief to non-investment entity investors in both investment entity associates and joint ventures.

The IASB has added amendments to IFRS 12 Disclosure of Interests in Other Entities as the comments received in response to the ED highlighted a lack of clarity of the applicability of IFRS 12 to the financial statements of an investment entity. The additional amendments clarify that the scope exclusion in paragraph 6(b) of IFRS 12 does not apply to the financial statements of a parent that is an investment entity and measures all of its subsidiaries at fair value.

 

Effective date and transition requirements

The amendments are effective for annual periods beginning on or after 1 January 2016 and must be applied retrospectively. Earlier application is permitted. The amendments are subject to EU endorsement, but, aside from the IAS 28 amendment regarding uniform accounting policies, do not conflict with existing standards.

 

Additional information

Correction list for hyphenation

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