IASB's proposal to exempt investment entities from consolidation requirements

25 August 2011

The IASB published proposals to define investment entities as a separate type of entity that would be exempt from the accounting requirements in IFRS 10 'Consolidated Financial Statements'. The exposure draft 'Investment Entities' is open for public comment until 05 January 2012.

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 entity controls an entity it is investing in. However, when developing IFRS 10, investors commented that this would not provide them with the information they need to assess the value of their investments. To address this issue, the exposure draft published proposes criteria that would have to be met by an entity in order to qualify as an investment entity. These 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.

This project is being undertaken jointly by the IASB and the 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 FASB will publish its exposure draft in due course.

Press release

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