INVESTMENT ENTITY – IASB UPDATES

January 20, 2012

In February and March 2012 the IASB and the FASB will hold round-table discussions on their proposals for investment entities. Round tables will be held in Toronto, ON, Canada; London, UK; Norwalk, CT, USA and Kuala Lumpur, Malaysia.
In the exposure draft Investment Entities, the IASB is proposing to introduce an exception to the control principle in IFRS 10 Consolidated Financial Statements. This exception would prohibit an investment entity from consolidating its investments in controlled entities. Instead, each such investment would be measured at fair value through profit or loss in accordance with IFRS 9 Financial Instruments.
The exposure draft proposes criteria for an entity to qualify as an investment entity and guidance for making this assessment. The proposal would also require an investment entity to provide additional disclosures to enable users of its financial statements to evaluate the nature and financial effects of its financial activities.
The concept of an investment company is not a new concept in US GAAP; US GAAP already has specialised accounting and reporting guidance for investment companies.
The FASB has published an exposure draft Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements proposing amendments to the current criteria for determining whether an entity is an investment company.
The exposure draft also proposes amendments to the measurement, presentation, and disclosure requirements for investment companies.
The investment entities project is a joint project between the IASB and the FASB. The two exposure drafts are broadly similar, although there are some differences in the IASB’s and FASB’s proposals.
The round table in Norwalk will also discuss the FASB’s exposure draft Real Estate—Investment Property Entities (Topic 973) which develops accounting guidance for entities focused on investing in real estate properties. The investment property entities project will only be discussed at the Norwalk round table.
The round tables in Toronto, London and Kuala Lumpur will last two hours. The round table in Norwalk will last 3.5 hours (due to the combined discussion of the joint investment entities project and the FASB’s investment property entities project).