For many years, preparers and investors in the investment entity industry felt that consolidating the financial statements of an investment entity and its investees does not provide the most useful information. Consolidation made it more difficult for investors to understand what they are most interested in – the value of the entity’s investments.
The IASB were influenced by these arguments. In October 2012, the IASB amended IFRS 10 to provide a limited scope exception from the consolidation guidance for a parent entity that meets the definition of an investment entity. The changes provided a definition of an investment entity together with detailed application guidance. Entities that meet the definition of an investment entity in accordance with IFRS 10, do not consolidate certain subsidiaries and instead measure those investments that are controlling interests in another entity (ie their subsidiaries) at fair value through profit and loss. This exception does not apply to subsidiaries which provide investment related services to the parent entity (‘service subsidiaries’) which will continue to be consolidated. This is a mandatory exception, not an optional one.
There were a number of implementation issues identified in applying this exception and therefore in December 2014 the IASB published amendments to the investment entity exception entitled ‘Investment Entities: Applying the Consolidated Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)’ addressing these issues. These amendments are incorporated in this document.