IASB Proposes Consolidation Exemption for 'Investment Entities'

The International Accounting Standards Board (IASB) has published Exposure Draft ED/2011/4 Investment Entities, proposing to define 'investment entities' as a separate type of entity that would be exempt fr om the consolidation accounting requirements in IFRS 10 Consolidated Financial Statements.

The proposals arise from the consultation process around the issue of IFRS 10, wh ere many respondents questioned the usefulness of financial statement of investment entities if IFRSs continued to require the consolidation of entities that an investment entity controls.

In summary terms, the exposure draft proposes:

- criteria for an entity to qualify as an 'investment entity' (see below)

- an investment entity to measure its investments in controlled entities at fair value through profit or loss in accordance with IFRS 9 Financial Instruments (exceptions would apply to investees providing services that relate only to the entity's own investment activities, and investment entities that take control of collateral as a result of defaults related to its investments)

- additional disclosures to enable users to evaluate the nature and financial effects of its investment activities

- not to permit a parent of an investment entity to retain fair value accounting applied by its subsidiary, unless the parent itself qualifies as an investment entity, i.e. the parent would consolidate all entities in the group

- amendments to IAS 28 Investments in Associates and Joint Ventures to require an investment entity to measure its investments in associates and joint ventures at fair value through profit or loss in accordance with IFRS 9 (replacing the concept of 'venture capital organisation, mutual fund, unit trust and similar entities' with 'investment entity')