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Basis for conclusions on IFRS 12 investment entities

Basis for conclusions on IFRS 12 investment entities

Basis for conclusions on IFRS 12 investment entities

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) introduced a requirement for investment entities to measure their investments in particular subsidiaries at fair value through profit or  loss  instead  of  consolidating  them.  The Board also decided on specific disclosure requirements for  investment  entities.

In deciding on the appropriate disclosure requirements for investment entities,       the Board noted that investment entities would be required to make  the disclosures already contained in other Standards. In particular, the disclosure requirements in IFRS 7 Financial Instruments: Disclosures, IFRS 13 Fair Value Measurement and IAS 24 Related Party Disclosures are likely to be relevant for users of  investment  entity  financial  statements.

Basis for conclusions on IFRS 12 investment entities

Users told the Board that disclosures relating to the valuation methodology used     for measuring fair value and the underlying  inputs  are  essential  to  their  analyses. This information is already required by IFRS 7 and by IFRS 13 when reporting investments at fair value through  profit  or  loss  or  other  comprehensive income in accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.2 Accordingly, the Board decided that it was not necessary to propose any additional disclosure requirements  relating  to  the  fair  value  measurements  made  by  investment entities

In the Exposure Draft Investment Entities (the Investment Entities ED), the Board proposed that an investment entity would be required to meet a disclosure objective that addressed all of an investment entity’s investing activities. The Investment Entities ED also gave a number of examples of ways in which an investment entity could meet that disclosure objective. Respondents generally supported the disclosure guidance. However,  the  Board  noted  that  it  was  outside the scope of the Investment Entities project to require all investment entities to provide disclosures about their investing activities. Consequently, the Board decided to remove the disclosure objective and the examples on how to   meet the objective from the final requirements. Because the Investment Entities project focuses on providing an exception to consolidation, the Board decided to limit  additional  disclosures  to  information  about  unconsolidated   subsidiaries.

Basis for conclusions on IFRS 12 investment entities

The Board also decided to require an investment entity to disclose the fact that it has applied the exception to consolidation, noting that such a disclosure would represent useful information. Moreover, the Board decided to require an investment entity to disclose when it does not display one or more of the typical characteristics of an investment entity, along with a justification of why it still meets the definition of an investment  entity.

The Board considered whether all of the disclosures in this IFRS should apply to the investments in unconsolidated subsidiaries, associates and joint ventures of investment entities. The Board decided that some (eg summarised financial information and information about non-controlling interests) are not applicable to investment entities and are inconsistent with the assertion that fair value information is the most relevant information for investment entities. Consequently, the Board decided to specify the IFRS 12 requirements applicable to the unconsolidated subsidiaries, associates and joint ventures held by investment entities.

Basis for conclusions on IFRS 12 investment entities

Consistently with the principles in this IFRS, the Board decided to require an investment entity to disclose when any explicit or implicit financial support has been provided to entities that it controls. The Board concluded that it would help users of financial statements to understand an investment entity’s exposure to risk.

The Board decided that an investment entity should disclose the nature and   extent of any significant restrictions (eg resulting from borrowing arrangements or regulatory requirements) on the ability of investees to transfer funds to the investment entity in the form of cash dividends, or repayment of loans or advances. The Board considered this requirement to be useful for investors because such restrictions could potentially affect distributions to investors of the investment entity’s returns from investments.

Basis for conclusions on IFRS 12 investment entities

In December 2014, the Board issued Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28). This amended paragraph 6(b) of IFRS 12 to clarify the applicability of IFRS 12 to the financial statements of an investment entity. In June 2014, the  Board  published  the  Exposure Draft Investment Entities: Applying the Consolidation Exception (Proposed amendments to IFRS 10 and IAS 28) (the ‘Consolidation Exception ED’). The comments received in response to the Consolidation Exception ED highlighted a lack of clarity about the applicability of IFRS 12 to the financial statements of an investment entity. In particular, the respondents to the Consolidation Exception ED pointed out that paragraph 6 of IFRS 12 stated that the Standard did not apply to  an entity’s separate  financial  statements  without  stating  the  applicability  of  IFRS  12  to  an  investment  entity.  The  Board  noted   that,   in   contrast,   paragraph 16A of IAS 27 Separate Financial Statements requires that an investment entity shall present the disclosures relating to investment entities  required  by  IFRS 12. Accordingly, in response to the feedback received, the Board decided to clarify that the scope exclusion in paragraph 6(b) does not apply to the financial statements of a parent that is an investment entity and has measured all of its subsidiaries at fair value through profit or loss in accordance with paragraph 31     of IFRS 10. In such a case, the investment entity shall present the disclosures relating to investment entities required by IFRS 12.   The Board also noted that if   an investment entity has a subsidiary that it consolidates in accordance with paragraph 32 of IFRS 10, the disclosure requirements in IFRS 12 apply to the financial statements  in  which  the  investment  entity  consolidates  that  subsidiary.

Basis for conclusions on IFRS 12 investment entities

The International Financial Reporting Standards Foundation, or IFRS Foundation, is a nonprofit accounting organization. Its main objectives include the development and promotion of the International Financial Reporting Standards (IFRSs) through the International Accounting Standards Board (IASB), which it oversees.[1][3]

The foundation was formerly named the International Accounting Standards Committee (IASC) Foundation until a renaming on 1 July 2010, and as of 2012 is governed by a board of 22 trustees.

The IFRS Foundation also develops and maintains the IFRS Taxonomy, which is the representation of the IFRSs in eXtensible Business Reporting Language (XBRL), via its XBRL team. The team is supported by the XBRL Advisory Council and the XBRL Quality Review Team, which respectively provide strategic advice and reviews developed taxonomies.Additionally, in 2012 the foundation issued a call for industry participants in a project to develop “common industry practice concepts” for the taxonomy.

XBRL provides a “common, electronic format for business and financial reporting”, which will contribute to the global convergence of accounting standards towards IFRS; the director of XBRL activities at the IFRS Foundation, Olivier Servais, hopes that “everybody will be using it” in future.As of March 2012, the IFRS Taxonomies have “considerably fewer” tags than GAAP taxonomies, and the Security and Exchange Commission has not approved the IFRS Taxonomy for use in XBRL filings in the United States.

Basis for conclusions on IFRS 12 investment entities

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