FASB Issues Proposal to Clarify Criteria for Investment Company Accounting
The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update intended to improve and converge financial reporting by setting forth consistent criteria for determining whether an entity is an investment company.
Comments on the proposed Update are requested by January 5, 2012.
This proposed Update is a result of the efforts of the FASB and the International Accounting Standards Board (IASB) to develop consistent criteria for determining whether an entity is an investment company.
Under longstanding U.S. generally accepted accounting principles (GAAP), investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company.
The primary changes being proposed by the FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation requirements. These changes are being proposed for the first time under International Financial Reporting Standards (IFRS).
FASB said: “Therefore, the proposed Update would improve the comparability between entities that meet the criteria to be investment companies under U.S. GAAP and those that meet the criteria to be investment entities under the proposed amendments to IFRS.”
In addition to the changes to the criteria for determining whether an entity is an investment company, the FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity.
The IASB issued its proposal, Investment Entities, on August 25, 2011. Comments on the IASB’s Exposure Draft are also requested by January 5, 2012.