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IAS 28 Applying the fair value option: an investment by investment choice or a consistent policy choice

Date recorded:

The Project Manager introduced the agenda paper which related to a request for clarification received by the Interpretations Committee. The submitter asked about the application of the fair value option by a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds. The question was whether the application of the fair value option was an investment-by-investment choice or an accounting policy choice to be applied consistently. The submitter noted that the IASB had revised IAS 28 in 2011. Before the revision, the fair value option appeared as a scope exemption in IAS 28; however, that paragraph was moved to the body of IAS 28 as a result of the revision. The submitter claimed that before the revision in 2011, entities had an explicit option whereby they could choose to measure investees using the equity method, or the fair value option, on an investment-by-investment basis. However, after the revision, it had become less obvious whether the entity still had the same option.

The staff concluded that this was an unintended consequence of the amendments introduced in 2011 and the staff recommended amending IAS 28 through an annual improvement to allow the fair value option on an investment-by-investments basis.

Several Interpretation Committee members expressed agreement with the staff proposal, because they indicated that the issue was an unintended consequence of the amendment of IAS 28. Some IASB Board members also expressed agreement with the proposal.

One Committee member expressed concern as to whether the annual improvement approach would be the best. However, he agreed with the staff recommendation. The Implementation Director clarified that they had selected this path because their only intention was to make a clarification.

One IASB Board member said that she would like the clarification to be clear in terms of the terminology used. The term fair value option would be confusing because it would be the term used in IFRS 9.

One Committee member asked what preparers should do before the annual improvements were approved. The Project manager responded that what they were doing was just a clarification so entities would be allowed to use the option on an investment-by-investment basis.

The Chairman concluded that entities were not currently precluded from applying the fair value option on an investment-by-investment basis if they already had such an accounting policy choice. One member stated that that fact should be identified in the agenda decision.

The Chairman concluded that they agreed with the staff recommendation.

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