ED/2011/4 Investment Entities (closed)

On 25 August, the IASB published for public comment an exposure draft of proposals to define investment entities as a separate type of entity that would be exempt from the accounting requirements in IFRS 10 Consolidated Financial Statements. 

Published: 25 August 2011
Comments by: 5 January 2012

• ED/2011/4 Investment Entities (PDF 341KB/50 pages)

Summary of the IASB proposals

On 25 August, the IASB published for public comment an exposure draft of proposals to define investment entities as a separate type of entity that would be exempt from the accounting requirements in IFRS 10 Consolidated Financial Statements.

Investment entities are commonly understood to be entities that pool investments from a wide range of investors for investment purposes only. They include venture capital organisations, mutual funds, unit trusts and similar entities.

Currently, IFRS 10 Consolidated Financial Statements would require consolidation if an investment entity controls an entity it is investing in. However, when developing IFRS 10, investors commented that this would not provide them with the information they need to assess the value of their investments. To address this issue, the exposure draft proposes six qualifying criteria that would have to be met by an entity in order to qualify as an investment entity.

1. The entity's only substantive activities are investing in multiple investments for capital appreciation, investment income or both
2. The entity’s business purpose is investing to earn capital appreciation, investment income or both and it makes an explicit commitment to its investors about this.
3. Investors own units of investment in the entity eg, shares or partnerships interests.
4. The entity pools the funds it receives from its investors, so that the investors can benefit from professional investment management.
5. The entity manages and evaluates the performance of its investments on a fair value basis
6. The entity provides financial information about its investment activities to its investors.

Entities that meet these qualifying criteria would be exempt from the consolidation requirements of IFRS 10 and instead would be required to account for all their investments at fair value through profit or loss. The exposure draft also includes disclosure requirements about the nature and type of these investments.

This project is being undertaken jointly by the IASB and the US national standard-setter, the FASB. Both boards’ proposals are broadly aligned. However, the FASB is considering proposing that the exemption would extend to cases in which the investment entity is owned by a larger group that is not itself an investment entity. The FASB will publish its exposure draft in due course.
 
The IASB requests comments on the exposure draft by 5 January 2012.

• Visit the IASB’s consolidation project page

Available downloads

• IASB press release
• IASB snapshot summary