The International Accounting Standards Board (IASB) has published the Exposure Draft Investment Entities–Applying the Consolidation Exception for public comment as proposed by the amendments of IFRS 10 and IAS 28.
The proposed amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures are designed to clarify three issues about the application of the requirement for investment entities to measure subsidiaries at fair value instead of consolidating them.
The suggested amendments confirm that an entity can apply the consolidation exemption even if its parent entity measures its subsidiaries at fair value in accordance with IFRS 10.
The proposal also seeks to clarify when an investment entity parent should consolidate a subsidiary that provides investment-related services instead of measuring that subsidiary at fair value.
A subsidiary that provides services related to the parent's investment activities should not be consolidated if the subsidiary itself is an investment entity.
The amendments also simplify the application of the equity method for an entity that is not itself an investment entity but that has an interest in an associate that is an investment entity.
When applying the equity method, a non-investment entity investor in an investment entity retains the fair value measurement applied by the associate to its interests in subsidiaries, unless the non-investment entity investor is a joint venturer where the joint venture is an investment entity.
The issues originated from submissions to the IFRS Interpretations Committee, which recommended that the IASB should amend the Standards to clarify the requirements in order to reduce the risk of diversity developing in practice.
The proposals are open for public comment for 96 days. This is shorter than the normal comment period, reflecting the 1 January 2014 effective date of the original requirements in IFRS 10 for investment entities.