Project
IAS 27 Consolidated and Separate Financial Statements requires an investment entity to consolidate all investments in entities that it controls. ED 10 Consolidated Financial Statements did not propose to change the scope of the consolidation requirements. However, many respondents to ED 10 asked the IASB to consider whether investment entities should be exempt from consolidating investments in entities that are controlled.

In response to those requests, the IASB initiated a project to define an investment entity for the purpose of such an exemption (February 2010). The IASB is conducting the project jointly with the FASB. The boards completed their initial deliberations in June 2010. The IASB published its exposure draft on 25 August 2011.

Main decisions
The proposals are similar to an existing exception to consolidation in US GAAP, according to which an investment entity must measure investments in entities that it controls at fair value, with changes in fair value recognised in profit or loss. However, while the proposed definition of an investment entity has the current US GAAP guidance as a basis, the boards propose changes to the definition to remove any specific references to US regulation and to address implementation concerns about that guidance. The proposals would require an investment entity to provide additional disclosures for IFRS about entities that it controls when it measures investments in those entities at fair value.

The boards propose that a parent of an investment entity (if it is not an investment entity itself) should not retain in its consolidated financial statements the fair value accounting that is applied by its investment entity subsidiary. As a consequence, a parent of an investment entity would consolidate all entities that it controls, including those that are controlled by an investment entity subsidiary, unless the parent is an investment entity itself.

The IASB also decided to tentatively require a parent of an investment entity to retain the fair value accounting applied by it investment entity subsidiary to investments that it does not control, including investments in associates and joint arrangements.