IFRS 10 — Exemption from preparing consolidated financial statements
The staff introduced the paper and described the issue:
The issue is whether the exemption set out in paragraph 4 (a) of IFRS 10 is available to entities that, as a result of the Investment Entities amendments, are measured at fair value in the consolidated financial statements of the parent entity. Specifically, the issue presented to the Interpretations Committee is whether an intermediate parent (that is not an investment entity) can use the exemption from preparing consolidated financial statements if it is reflected at fair value in its investment entity parent’s financial statements.
Before the introduction of the Investment Entities amendments, an intermediate parent that has an ultimate parent that is an investment entity parent that consolidated all investees was exempt from presenting consolidated financial statements except in cases in which minority shareholders disagree, debt or equity shares were publicly traded or the entity was in the process of filing its financial statements to regulators.
The paper explores the benefits and consequences of providing or not the exception for consolidation.
The staff believes that the exemption from preparing consolidated financial statements set out in paragraph 4 (a) should be available to an intermediate parent entity that is a subsidiary of an investment entity but that is not an investment entity itself. The staff thinks that this can be made through Annual Improvements to clarify the applicability of the exemption
Comments raised by IC members:
Several members raised concerns related to (i) the fact that could be significant entities that are intermediate parents that will not produce consolidated financial statement (ii) it creates significant structuring opportunities, (iii) the amendments could create unintended consequences because intermediate parents that are not investment entities could interpret that they are entitled to the exception.
Some members support the recommendation on a basis of cost/benefit and that they understand that the ultimate parent will present consolidated financial statements.
The staff clarified that they believe there were unintended consequences when the exception from investment entities was introduced and this project only tries to amend that.
One member indicated that this is a different situation because now we have an investment entity that is not producing consolidated financial statements.
One member requested that it is necessary to ask the board whether this issue is really an unintended consequence derived from the introduction of the consolidation exception for investment entities.
The chairman requested a vote an only six members expressed support for the project meaning that it was rejected. In addition, the majority of the members approved going back to the board to clarify whether this issue relates to unintended consequences.