ESMA commented to the IASB on its ED Investment Entities

11 January 2012

ESMA considered the IASB's ED Investment Entities. ESMA supports the proposed requirement for investment entities to measure investments in entities that it controls at fair value through profit or loss in accordance with IFRS 9 Financial Instruments, rather than consolidating such investments.

ESMA believes that the IASB should:

• Introduce a main principle that the general business model of the parent investment company is to invest for capital appreciation, investment income (such as dividends or interest) or both. For an entity to meet this principle, ESMA believes that its business model must meet all the criteria identified in paragraph 2 of the ED (except criterion 2f for the reasons set out in this letter) as wall as the additional criteria proposed in this letter;
• Identify the exit strategy as an additional criterion: an exit strategy is specific to the business of investment entities and should be in place as part of the business model. ESMA believes that all criteria should be fulfilled to qualify for the exclusion of consolidation (with the exception of criterion 2f). ESMA feels that a high prominence of all criteria would contribute to better financial reporting, better information to users of the financial information and a better enforcement process.

Whilst ESMA would not be supportive of an overly prescriptive requirement for the format of disclosures, it may be helpful to users of the information to include the proposed schedules (of investments and financial highlights) as a disclosure requirement.

Regarding the scope exclusion in IAS 28 'Investment in Associates', ESMA considers that the IASB should clarify the impact (if any) of the amendment of the scope exception.

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