Australian standard setter concerned about investment entities amendments

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02 Nov 2012

The Australian Accounting Standards Board (AASB) has tentatively decided to delay adoption in Australia of the IASB's recently issued investment entities amendments until after due process is undertaken for additional note disclosures 'in response to concerns about the loss of consolidation information that would result from the IFRS amendments'.

The tentative decision was made at a meeting of the AASB held on 31 October and 1 November 2012.  The AASB Action Alert (link to AASB website) issued summarising the meeting outlines the concerns about the investment entity amendments and outlines a tentative decision that a forthcoming Australian-specific exposure draft "should propose disclosure of the three primary financial statements that would be produced under full consolidation".

The AASB staff paper (link to AASB website) discussed at the meeting canvasses a number of options that the AASB could have taken in relation to investment entities amendments.  The paper includes the possibility of not adopting the investment entity amendments at all, which would undermine the ability of Australian investment entities to claim compliance with IFRS.

In the paper, the staff note that, no matter which approach the AASB adopts in relation to investment entities, the AASB will need to compromise one or other of its policies.  The paper notes that the IFRS amendments are inconsistent with the AASB's stated policy of 'transaction neutrality' which states that the AASB "considers that the fundamental nature of the elements of financial statements (assets, liabilities, income and expenses) and their qualitative characteristics are generally unaffected by different business models".

The paper also notes that an approach other than making the amendments in line with the IFRS amendments would compromise the AASB's policy of only modifying IFRS for not-for-profit entities.  The AASB has progressively removed Australia-specific requirements from its standards in relation to for-profit entities in implementing this policy.

In relation to the option of requiring additional disclosures tentatively chosen by the AASB, the paper notes that it "signals the significant concern of the AASB that the amendments are contrary to the core accounting principle of control".  Concerns about structuring opportunities are also noted.

In response to these and other concerns, the Basis for Conclusions introduced into IFRS 10 Consolidated Financial Statements by the investment entities amendments notes the following:


The Board acknowledges these arguments, but notes that the exception to consolidation has been introduced in response to comments from users that the most useful information for an investment entity is the fair value of its investments. Users also commented that consolidated financial statements of an investment entity may hinder users’ ability to assess an investment entity’s financial position and results, because it emphasises the financial position, operations and cash flows of the investee, rather than those of the investment entity.

The investment entities consolidation exemption has been contentious in the Australian context for some time.  In October 2011, the AASB Chairman, Kevin Stevenson, took the unusual step of issuing a press release highlighting the IASB's (then)  investment entity proposals may "depart from the concept of control and lead to unjustified changes in requirements".

The AASB is expecting to issue an exposure draft on its proposed additional disclosures before the end of 2012.  Click for access to the AASB Action Alert (link to AASB website).

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