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Definition of investment entities introduced by the IASB - 06/12/2012


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Welcome to this edition of the IFRS Newsletter of Deloitte Luxembourg prepared by the Deloitte Luxembourg IFRS Centre of Excellence with contributions from the professionals of our firm.

Considering the Luxembourg business environment, we have decided to issue a separate Newsletter relating to upcoming new requirements for investment entities issued by IASB on 31 October 2012. These will be effected through a series of changes to IFRS 10, 12 and IAS 27 with endorsement by European Union expected in Q3 2013. Early adoption in Europe would be possible only once the standard has been endorsed.

The requirements are to be applied retrospectively for reporting periods beginning on or after 1 January 2014, being the dates set by IASB. We also remind that IFRS 9 is not yet endorsed in European Union and therefore that IAS 39 is still to be applied for the fair value measurement mentioned below in European Union.

In this issue, we will discuss the definition of investment entities introduced by the IASB and the new fair value rules for investment entities.

As part of its Consolidation project, the International Accounting Standards Board (IASB) has been considering, whether entities that measure and manage their investments on a fair value basis (generally known as « investment entities ») should be given relief from the consolidation requirements of IFRS 10 “Consolidated Financial Statements”.

The justification for granting such relief has been that for certain entities information on the fair value of their investment in a subsidiary is more relevant than consolidation of its individual assets and liabilities and the difficulty has been to circumscribe those specific “investment entities” where this is the case.

Following comments received on its Exposure Draft (ED), which was issued in August 2011, the IASB issued a series of amendments to IFRSs to give effect to new requirements for investment entities. The requirements include some notable differences from those proposed in the ED, particularly to the definition of an “investment entity” and its application.

Under the new requirements, ownership interests in entities controlled by investment entities shall be accounted for at fair value through profit and loss (FVTPL) in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement) rather than being consolidated. Therefore this is not an option but a requirement that where an entity qualifies as an ‘investment entity’ it does not consolidate its subsidiaries but measures its investments at fair value.

As a consequence, consideration of the criteria for meeting the definition of an ‘Investment entity’ is key and it will require a degree of judgements based on facts and circumstances. These changes may impact entities traditionally considered beyond the scope of traditional investment entities.

All the topics mentioned above are detailed in the attached PDF.

For additional information on these topics and on services we could provide to your entity, contact us at luifrsdesk@deloitte.lu. Deloitte has a range of tools and publications to assist in implementing and reporting under IFRS.

We hope you find this issue useful. As always, we value and welcome your comments and feedback.

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