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Consolidation

IASB meeting summaries and observer notes


 IASB July 2012


 

The IASB continued its discussions on the Investment Entities project and discussed the following issues:

  • request for extension of exception to consolidation;
  • sweep issues;
  • reassessment;
  • disclosures;
  • transition and effective date; and
  • Due Process.

Request for extension of exception to consolidation

The IASB tentatively decided not to extend the exception to consolidation for insurers' insurance investment fund subsidiaries within the scope of the Investment Entities project.

Fourteen IASB members agreed and one IASB member was absent.

Sweep issues

The IASB tentatively decided that:

  1. controlled investees and investments in associates and joint ventures should be initially measured at fair value in accordance with IFRS 9 Financial Instruments.
  2. the requirements for investment entities should not include any measurement guidance for investments other than controlled investees and investments in associates and joint ventures.
  3. the IASB should not introduce a net asset value ('NAV') practical expedient for fair value measurement within the Investment Entities project.
  4. the definition of an investment entity should not make reference to existing regulatory requirements.
  5. an investment entity should not be prohibited from providing financial support to its investees so long as the provision of financial support does not constitute a separate substantive activity of the entity.

All IASB members agreed.

Reassessment

The IASB tentatively decided to:

  1. Require an entity to reassess its investment entity status if facts and circumstances indicate that its status has changed. All IASB members agreed.
  2. Provide the following guidance regarding the accounting for controlled investees when an entity changes its investment entity status:
    1. When an entity ceases to be an investment entity, it shall apply IFRS 3 Business Combinations and recognise goodwill or a bargain purchase (as applicable). Fourteen IASB members agreed and one IASB member was absent.
    2. When an entity becomes an investment entity, it shall apply the requirements of IFRS 10 Consolidated Financial Statements for loss of control and any resulting gain or loss shall be recognised in profit or loss. Ten IASB members agreed, four IASB members disagreed and one IASB member was absent.
  3. Retain the proposed disclosures to be given when an entity changes its status. All IASB members agreed.
  4. Draft reassessment guidance in IAS 28 Interests in Associates and Joint Ventures and IAS 27 Separate Financial Statements that is consistent with the decisions made for the reassessment guidance for IFRS 10. Thirteen IASB members agreed, one IASB member disagreed and one IASB member was absent.

The IASB noted that paragraph 4 of IFRS 10 already provides some relief from preparing consolidated financial statements for an intermediate parent entity and tentatively decided not to provide any additional relief when an intermediate parent entity ceases to qualify as an investment entity. Eleven IASB members agreed, three IASB members disagreed and one IASB member was absent.

Disclosures

The IASB tentatively decided that:

  1. the disclosure requirements should only apply to investment entities with investments in subsidiaries, associates or joint ventures (all IASB members agreed); and
  2. an investment entity with one or more subsidiaries, associates or joint ventures should not be required to provide information about all of its investment activities (Thirteen IASB members agreed, one IASB member disagreed and one IASB member was absent).
  3. An investment entity should be required to provide the disclosures required by IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurement in addition to the disclosure requirements for Investment Entities (Fourteen IASB members agreed and one IASB member was absent).
  4. The 'interests in subsidiaries' disclosures in IFRS 12 Disclosures of Interests in Other Entities should only apply to consolidated investments of investment entities, except for paragraphs 14 and 16, which should still apply to an investment entity (Fourteen IASB members agreed and one IASB member was absent).
  5. Investment entities with joint ventures and associates accounted for using the fair value method need not apply paragraphs 21(b), 21(c), 22(b) and 22(c) of IFRS 12 (Fourteen IASB members agreed and one IASB member was absent).
  6. Paragraph B20 of the Exposure Draft should not be carried forward to the final investment entities requirements (Fourteen IASB members agreed and one IASB member was absent).
  7. An investment entity should be required to disclose that it is an investment entity and thus that it has not consolidated controlled investees (All IASB members agreed).
  8. An investment entity should be required to disclose how it has met the definition and typical characteristics to be an investment entity, with specific reasons given if it has not met one or more of the typical characteristics (All IASB members agreed).

Transition and effective date

The IASB tentatively decided to develop transition guidance based on a retrospective approach, which would be consistent with the approach used in the IFRS 10 transition guidance. Thirteen IASB members agreed, one IASB member disagreed and one IASB member was absent.

The IASB tentatively decided to:

  1. allow investment entities to apply the existing impracticability exception in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to retrospective application;
  2. require, for the purposes of transition, the assessment of investment entity status only at the date of initial application of the investment entity requirements;
  3. on transition, to allow investment entities to retain the previous accounting for investees disposed of in the comparative period(s);
  4. for the purposes of transition, to allow the use of fair value that is consistent with fair value as defined by IFRS for periods prior to the effective date of IFRS 13; and
  5. for the purposes of transition, to limit the requirement to present adjusted comparatives to the annual period immediately preceding the date of application of these investment entity requirements, with any unadjusted comparatives being clearly identified.

Fourteen IASB members agreed and one IASB member was absent.

The IASB tentatively decided that the transition guidance relating to investment entities for IAS 28 Interests in Associates and Joint Ventures and IAS 27 Separate Financial Statements should be consistent with the decisions made for the transition guidance for IFRS 10.

Fourteen IASB members agreed and one IASB member was absent.

In respect of first-time adopters of IFRS, the IASB tentatively decided:

  1. To require retrospective application of the requirements. Entities preparing their first IFRS financial statements for annual periods ending on or before 31 December 2014 would be permitted to apply the same impracticability exception and IFRS 13 exception as described in the transition requirements above.
  2. To require the assessment of investment entity status at the date of transition to IFRS.
  3. To allow first-time adopters to apply the consolidation exception in IFRS 10 early, together with the other requirements of IFRSs 10-12.

All IASB members agreed.

The IASB tentatively decided to set an effective date of 1 January 2014 for the final amendments and permit early adoption. All IASB members agreed. The IASB noted that it is important to explain clearly in the Basis for Conclusions that it is setting an effective date of 1 January 2014 to allow a sufficient time lag between the publication of the investment entities requirements and their effective date. However, the IASB thinks that it is important to allow early adoption in order to allow entities to apply the investment entities amendments at the same time as the initial application of IFRS 10, which has a mandatory effective date of 1 January 2013.

Due Process

All IASB members stated that they are satisfied that the IASB has performed all mandatory due process steps and performed sufficient additional due process steps to support the decisions made in this project. The IASB believes that:

  1. it has not changed the basic concepts exposed in the Investment Entities Exposure Draft but has made a number of refinements to the proposals in response to comments received;
  2. the proposed changes affect only a limited number of entities; and
  3. the issues involved are well understood by both the IASB and its constituents.

Consequently, all IASB members agreed that none of the amendments require re-exposure.

All IASB members agreed that they should proceed to ballot the Investment Entities requirements.

No IASB members stated that they plan to dissent from the Investment Entities requirements.

Date: 7/19/2012