IFRS 10, IFRS 12 and IAS 28 Amendments - Investment Entities: Applying the Consolidation Exception

In July 2013, the IFRS Interpretations Committee (the IC) received a request to clarify several issues related to the Investment Entities amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements in respect of the definition of investment related services, the application of the consolidation exception by the members of a group held by an investment entity, and application of the equity method by joint operators.

The IC discussed the issues at its November 2013 and January 2014 meetings but did not reach a consensus. The IC conveyed then the issues to the IASB for a discussion at the March 2014 meeting. At this meeting, the IASB decided to issue an exposure draft on the narrow-scope amendments to IFRS 10 and IAS 28 Investments in Associates and Joint Ventures.

On 11 June 2014, the IASB published an Exposure Draft Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10 and IAS 28) ('the ED') with a 96-day comment period ending on 15 September 2014. The ED proposes to:

1. confirm that the exemption from presenting consolidated financial statements in paragraph 4(a) of IFRS 10 applies also to a parent that is a subsidiary of an investment entity, even when this investment entity measures that subsidiary at fair value in accordance with paragraph 31 of IFRS 10;
2. clarify that an investment entity parent should consolidate its subsidiary, instead of measuring it at fair value, only when the subsidiary acts as an extension of the operations of the investment entity parent, and does not qualify itself as investment entity; and
3. specify that a non-investment entity investor with an investment in an investment entity associate, when applying the equity method, should retain fair value measurement applied by the investment entity associate to its interests in subsidiaries; and specify that the fair value measurement cannot be retained for accounting for joint ventures that are investment entities.

The EFRAG TEG members discussed a draft comment letter on the ED at the EFRAG TEG meetings in July 2014. EFRAG published the draft comment letter on 21 July 2014 with the comment period ending on 5 September 2014.

In its draft comment letter, EFRAG:

• supported the first IASB's proposal to confirm that the exemption from presenting consolidated financial statements applies also to a non-investment entity parent that is a subsidiary of an investment entity; and
• supported the second proposal to clarify when an investment entity parent should consolidate a subsidiary, which provides investment-related services, instead of measuring that subsidiary at fair value.
• disagreed with the third proposal and expressed its concerns in regrd to the IASB's rationale. In EFRAG's view, IAS 28 requirements should be consistent with the principles supporting IFRS 11. In particular, EFRAG noted that the unit of account is the investment in an associate or joint venture, not the individual assets and liabilities of the investee. EFRAG believed that mirroring IFRS 10 is not relevant.

On 1 October 2014, EFRAG published its final comment letter. In the final comment letter EFRAG changed its position in regard to the second IASB's proposal and finally disagreed to limit the situations where an investment entity parent should consolidate a servicing subsidiary to those subsidiaries that are not investment entities.

On 18 December 2014, the IASB issued Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) ('the Amendments').

On 11 May 2015, EFRAG published it's draft endorsement advice and a separate invitation to comment relating to the endorsement of the Amendments for use in the EEA. EFRAG's overall preliminary assessment is that the Amendments satisfy the criteria for endorsement for use in the EU and, therefore, recommends its endorsement.

On 22 July 2015, EFRAG submitted its Endorsement Advice relating to the Amendments for use in the European Union and European Economic Area. EFRAG assessed that the Amendments meet all technical endorsement criteria of the IAS Regulation and is conducive to the European public good. EFRAG therefore recommended the endorsement of the Amendments.