08 May 2013

EFRAG: Is there a need for specific financial reporting for long-term investing activities business models?

The EC is currently consulting on a green paper considering possible ways for supporting long-term investment [view]. The role accounting could play is introduced, questioning more particularly whether investments held with a long term horizon are best depicted when measured at fair value. 

In April 2013 EFRAG published its comment letter on the IASB's ED: Classification and Measurement: Limited Amendments to IFRS 9. EFRAG noted that the IASB has made an effort to identify a separate business model - the so-called “held to collect and sell” model – for measurement and classification of financial instruments. Insurance and the long-term investment industries have typically indicated that the IASB was heading in the right direction to identify a third business model, but had failed to characterise it appropriately. EFRAG believes that unless more analysis is conducted, the IASB’s efforts to improve IFRS 9 as originally issued may be a missed opportunity.

In this context, EFRAG has decided to launch this public consultation with the aim to:

(a) characterise, in the context of financial reporting, a “long-term investment” business model;

(b) determine whether this ‘long-term investment’ business model could be supported by an appropriate objective evidence and what the observable characteristics are;

(c) identify whether this “long-term investment” business model is similar to the business model followed by companies, such as insurance companies, pension funds or other long-term investment entities;

(d) analyse whether such business model would justify specific accounting to bring greater relevance in financial reporting.

This public consultation will help EFRAG:

(a) contribute, in its role of technical advisor for financial reporting matters, to the European Commission consultation on the future of long-term investment;

(b) to better characterise long-term investment business models and contribute to accounting standard setting for such activities.

Press release

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