Exemption for Investment Firms from Accounting Requirements Pushed
The International Accounting Standards Board (IASB) has proposed defining the investment firms as a separate type of entity that would be exempt from the accounting requirements in IFRS 10 Consolidated Financial Statements.
Investment entities are commonly understood to be entities that pool investments from a wide range of investors for investment purposes only.
Currently, IFRS 10 Consolidated Financial Statements would require consolidation if an investment firm controls an entity it is investing in.
However, investors commented that when developing IFRS 10, this would not give them the information they need to assess the value of their investments.
To address this issue, the IASB’s exposure draft raised certain criteria that would have to be met by an entity in order to qualify as an investment firm.
These investment firms would not be required to comply with the consolidation requirements and instead would only need to account for all their investments at fair value through profit or loss.
The exposure draft also contains disclosure requirements about the nature and type of these investments.
This project is being undertaken jointly by the IASB and the US national standard-setter, the Financial Accounting Standards Board (FASB).
Both boards’ proposals are broadly aligned. However, the 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 exposure draft Investment Entities is open for public comment until 05 January 2012.
The FASB will align its comment period with that of the IASB to ensure joint re-deliberations. If adopted, the proposals would be integrated into IFRS 10.