The amendments (in Exposure Draft (ED) 2014/4) would confirm that the unit of account for investments in subsidiaries, joint ventures and associates is the investment as a whole, but that the fair value measurement of quoted investments in subsidiaries, joint ventures and associates should be the product of the quoted price multiplied by the quantity of financial instruments held, without adjustments.

The FRC agrees that the unit of account for investments within the scope of IFRS 10 Consolidated Financial statements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures is the investment as a whole rather than the individual financial instruments included within that investment.

However, the FRC does not believe that an approach of multiplying the quoted price by the quantity of the individual financial instruments held (PxQ) will correspond to the fair value of quoted investments in subsidiaries, joint ventures and associates as “the fair value of the investment will include a control premium”.  The FRC also does not believe that a PxQ measurement is more relevant than one that reflects a control premium and believes that “fair value should be determined by another valuation technique”.

Nevertheless, the FRC accepts “that it may be required as a pragmatic departure that would apply in limited circumstances”.  It comments that if adopted “it is important that it is clearly identified as a departure from fair value in the standards and in the Basis for Conclusions”.  Additionally, if this method is to be required by the IASB, disclosure of its use should be required” including the write-off of any control premium paid on the acquisition of an investment”.

Regarding the placement of the amendments, the FRC believes that “if the IASB concludes that the requirement to use a PxQ measurement is a clarification of the principles of fair value” then IFRS 13 Fair Value Measurement should be revised to include this material rather than inclusion within the five IFRSs proposed (although cross references to IFRS 13 from those Standards would be helpful).  This would then keep IFRS 13 as “a comprehensive codification of the application of fair value under IFRSs”.

The full comment letter is available on the FRC website.