IASB Releases Amendments for Investment Organizations

Thursday, November 1, 2012 Print Email

The International Accounting Standards Board has released ‘Investment Entities (Amendments made to International Financial Reporting Standards 10, 12 and International Accounting Standards 27)’ offering an exemption from subsidiaries consolidation under International Financial Reporting Standards 10 for organization that fulfills “investment entity’s” definition, like some investment funds. Such organizations instead will conduct measurement of their investment in specific subsidiaries at a value that is fair via P& L (profit and loss) as per International Financial Reporting Standard 9 ‘Financial Instruments’ or International Accounting Standard 39 ‘Financial Instruments: Recognition and Measurement'.

IASB’s amendments define an 'investment entity' as an organization that:

· Acquires money from either one or more than one investor with an intention of offering those very investor/investors with services pertaining to investment management

· Gives commitment to its investor/investors that its purpose is to invest the money solely with an intention to acquire returns through investment related income, capital appreciation, or both as well as

· Evaluates and measures how sustainability of its entire investments based on fair value is performing

An organization must take into consideration all the circumstances and facts at the time of determining whether it is an investment organization, in addition to its design and purpose. The amendments clarify that an investment organization must have the following usual characteristics:

· Over one investment

· Over one investor

· Investors who do not have any relation with the organization or other group members of the entity

· Ownership related interest, ideally in equity’s form or similar kind of interests (for example partnership interests) which are attributed to the proportionate shares of the net assets of the investment organization.

If an organization fails to match one or more than one of these characteristics, it will have to justify as well as disclose the manner in which its activities are consistent with the activities of the investment organizations.

The kind of organizations that match the definition of an investment organization may consist of venture capital entities, sovereign wealth funds, private equity entities, pension funds, as well as other investment funds. However, where an organization matches the definition of an investment organization, it does not have the permission of consolidating its entire subsidiaries as well as will have to conduct measurement of those very subsidiaries at a value that is fair via profit& loss.

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