Investment Entities: Applying the Consolidation Exemption (Amend IFRS 10 and IAS 28)

BACKGROUND

The Accounting Standards Board (AcSB) is participating in the International Accounting Standards Board’s (IASB) project to amend International Financial Reporting Standard (IFRS) 10 Consolidated Financial Statements and International Accounting Standard (IAS) 28 Investments in Associates and Joint Ventures relating to three issues about the application of the requirement for investment entities to measure subsidiaries at fair value.

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The objective of this project is to clarify that:

  • the exemption from preparing consolidated financial statements is available to a parent entity that is a subsidiary of an investment entity, even though the investment entity measures its subsidiaries at fair value in accordance with IFRS 10;
  • the requirement for an investment entity to consolidate a subsidiary applies only to subsidiaries that are not themselves investment entities and whose main purpose is to provide services related to the parent’s investment activities; and  
  • in applying the equity method to an associate that is an investment entity, an investor should retain the fair value measurements that the associate used for its subsidiaries; however, for a joint venture that is an investment entity, a non-investment entity joint venturer that applies the equity method cannot retain the fair value measurement applied by that investment entity joint venture to its interests in subsidiaries.

The AcSB participates in the activities of the project to ensure that Canadian entities’ financial reporting needs are considered by the IASB. The amendments will be incorporated into Canadian GAAP in accordance with the AcSB’s strategy of adopting IFRSs for publicly accountable enterprises.

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PROJECT NEWS

Final Amendments – Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10 and IAS 28)
December 22, 2014. The IASB has issued narrow-scope amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investment in Associates and Joint Ventures to clarify the requirement for investment entities to measure subsidiaries at fair value. The amendments are effective for annual periods beginning on or after January 1, 2016 with earlier application permitted.

AcSB Response – Investment Entities: Applying the Consolidation Exception (Proposed amendments to IFRS 10 and IAS 28)
On September 15, 2014, the AcSB submitted a comment letter responding to the IASB’s Exposure Draft issued in June 2014. The letter supports the proposals in the Exposure Draft. The AcSB continues to think that fair value of controlled investments provides the most relevant information to the users of investment entity financial statements. The letter acknowledges that while many stakeholders consulted support the proposals, some concerns were raised by certain stakeholders. These stakeholders were concerned that applying the consolidation exception for investment entities and measuring subsidiaries at fair value may result in a lack of transparency of the underlying investments when an investment entity parent conducts all its investing activities through its subsidiaries. The letter notes that the AcSB will monitor the effect of the IFRS 10 amendments on the comparability of investment entity financial statements in Canada. Read the AcSB letter posted by the IASB.

AcSB Decision Summary – September 3-4, 2014
The AcSB discussed an issue raised during the consultation on the IASB’s Exposure Draft, “Investment Entities: Applying the Consolidation Exception.” The issue related to the proposal that an investment entity consolidates only those subsidiaries that act as an extension of the operations of the investment entity parent and do not themselves qualify as investment entities. While many stakeholders consulted supported the clarification, other stakeholders were concerned that applying the consolidation exception for investment entities and measuring subsidiaries at fair value may result in a lack of transparency of the underlying investments when an investment entity parent conducts all its investing activities through its subsidiaries. The AcSB approved its response letter to the Exposure Draft that includes reiterating its support for fair value accounting by investment entities and highlighting the concern raised by these stakeholders. The AcSB will monitor the effect of the IFRS 10 amendments on the comparability of investment entity financial statements in Canada.

Canadian stakeholders are encouraged to submit their comments directly to the IASB by September 15, 2014.

AcSB Exposure Draft – Investment Entities: Applying the Consolidation Exception (Proposed amendments to IFRS 10 and IAS 28)
June 27, 2014. The AcSB has issued an Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Canadian stakeholders are encouraged to submit their comments, on the form provided, by September 15, 2014.

IASB Exposure Draft – Investment Entities: Applying the Consolidation Exception (Proposed amendments to IFRS 10 and IAS 28)
June 16, 2014. The IASB has issued an Exposure Draft proposing amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures to clarify three issues about the application of the requirement for investment entities to measure subsidiaries at fair value. Canadian stakeholders are encouraged to submit their comments to the IASB by September 15, 2014.

 

Disclaimer: This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.