Amendments to IFRS 10, IFRS 12, IAS 27, IAS 28, IAS 36 and IFRS 13: Unit of Account

The IASB was informed that questions had been raised about the unit of account for investments in subsidiaries, joint ventures and associates that are within the scope of IFRS 10, IAS 27 and IAS 28 because the measurement requirements for such investments in those Standards refer to IFRS 9/IAS 39, and IFRS 9/IAS 39 refers to the fair value measurement of individual financial instruments.

In particular, the question was whether those references to IFRS 9/IAS 39 should be understood to:
(a) refer only to the measurement basis of the investments (for example, fair value through profit or loss); or
(b) also prescribe the unit of account of those investments (ie the individual financial instruments that make up the investment).

the IASB plans to issue proposed amendments to IFRS13 that aim to address questions relating to the interaction between the use of Level 1 inputs and the unit of account for investments in subsidiaries, joint ventures and associates.

These Amendments should clarify that:
(a) the unit of account for investments in subsidiaries, joint ventures and associates is the investment as a whole; and
(b) the fair value measurement of an investment composed of financial instruments quoted in an active market should be the product of the quoted price of the financial instrument (P) multiplied by the quantity (Q) of instruments held (ie P x Q).

On 16 September 2014, the IASB published the ED: ED/2014/4 'Measuring Quoted Investments in Subsidiaries, Joint Ventures and Associates at Fair Value'.

On 29 October 2014, EFRAG published its draft comment letter and requested comments by 31 December 2014.

In its draft comment letter, EFRAG is concerned that these proposals will not always result in relevant information because where the unit of account is the investment in a subsidiary, joint venture or associate, the price paid may include control premiums or discounts and consequently differ from the mathematical product price x quantity. The resulting financial information lacks relevance, impairs the assessment of management stewardship and does not faithfully represent the substance of the transaction.
Therefore, before finalising these proposed amendments, EFRAG believes that the IASB should analyse current practices in measuring fair value of this type of quoted investments including premiums and discounts and reassess where to strike the balance between relevance and reliability.
It is only after such an analysis has been conducted and its results have been publicly debated that EFRAG would - albeit reluctantly - accept the balance struck by the IASB in the ED between relevance and reliability. That is, EFRAG will only accept the proposals if it can be established that there is no better way than price x quantity to measure the fair value of an investment in a subsidiary, joint venture or associate quoted in an active market.

On 7 January 2015 EFRAG TEG discussed comments made by constituents on the initial messages in the draft comment letter and formed an advice to EFRAG Board. EFRAG TEG advised the EFRAG Board to approve a comment letter on the ED that bears the same main messages that were included in the draft comment letter.
On 14 January 2015 the EFRAG Board approved the letter that was published on 15 January. In its letter, EFRAG remains supportive of the clarification that the unit of account for investments within the scope of IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Venture is the investment in a subsidiary, joint venture or associate as a whole rather than the individual financial instruments included within that investment.

However, EFRAG remains concerned that determining the fair value measurement of this type of investments quoted in active market as the product of the quoted price of the financial instrument multiplied by the quantity of instruments held will not always result in relevant information because, where the unit of account is the investment in a subsidiary, joint venture or associate, the price paid may include control premiums or discounts.
Therefore, before finalising these proposed amendments, EFRAG believes that the IASB should: (a) analyse current practices in measuring fair value of this type of quoted investments including premiums and discounts and reassess where to strike the balance between relevance and reliability; and (b) consider developing guidance to bring fair value estimates that are consistent with the unit of account of the investment to a reasonable level of reliability.

In January 2016 the IASB Board decided to use the work carried out during the consultation phase of the ED and feed it into the Post-Implementation Review of IFRS 13 Fair Value Measurement.