The International Accounting Standards Board has proposed revising its standards in order to define investment entities as a separate type of entity that would be exempt from the requirements for consolidated financial statements.
The IASB published the proposals for exempting investment entities from consolidation requirements in IFRS 10. Its counterpart in the U.S., the Financial Accounting Standards Board, plans to publish similar proposals in the near future. However, FASB is considering proposing that the exemption would extend to cases in which the investment entity is owned by a larger group that is not itself an investment entity.
The investment entities covered in the accounting boards’ proposals typically pool investments from a wide range of investors for investment purposes only. Currently, IFRS 10, “Consolidated Financial Statements,” would require consolidation if an investment entity controls an entity in which it is investing. However, when the IASB was developing IFRS 10, investors commented that this would not provide them with the information they needed to assess the value of their investments.
To address this issue, the exposure draft published by the IASB last Friday proposes criteria that would have to be met by an entity in order to qualify as an investment entity. The entities would be exempt from the consolidation requirements and instead would be required to account for all their investments at fair value through profit or loss. The exposure draft also includes disclosure requirements about the nature and type of these investments.
The exposure draft
FASB plans to align its comment period with the IASB’s to provide for joint re-deliberations of the final standards.
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