EFRAG issues final endorsement advice on amendments regarding the application of the investment entities exception
23 Jul, 2015
The European Financial Reporting Advisory Group (EFRAG) has submitted to the European Commission its endorsement advice letter for the use in the EU of ‘Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)’ (“the amendments”).
The amendments, which were published by the International Accounting Standards Board (IASB) in December 2014, make changes aimed at clarifying the following aspects:
- Exemption from preparing consolidated financial statements. The amendments confirm that the under IFRS 10 Consolidated Financial Statements 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 Disclosure of Interests in Other Entities.
EFRAG supports the adoption of the amendments and recommends their endorsement. EFRAG’s assessment is that the amendments meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.
EFRAG also considers that the overall benefits of the amendments are likely to outweigh the associated costs to implement them.
EFRAG has also updated its endorsement status report to reflect the issuance of the endorsement advice letter.
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