EXPOSURE DRAFT (ED/2011/4)

Exposure Draft (ED/2011/4)

Exposure Draft (ED/2011/4)

Introduction

The IASB in August 2011 published an exposure draft on ED/2011/4 which was for investment companies that should complement the new provisions on consolidated accounts (IFRS 10, 11, 12 and IAS 28).  The project plans to extend the application (becoming mandatory) of IFRS 9 to all interests held by investment companies in subsidiaries, associates or joint ventures (Grant Thornton, 2011, pp. 14).

For this application, an investment company should meet the following criteria:

Having a core business investment, explicitly taken to its investors for capital appreciation or income (dividends or interest);

Its equity shares consist of entitlement to a proportion of net assets;

The funds of the entity are part of a "pool fund" whose investments are managed on the basis of fair value entity and publishes information on them for its investors.

Discussion

Investment companies are generally considered to be companies that focus investments on a number of investors for investment purposes. Currently IFRS 10 provides a consolidation when an entity controls an investment company, in which it invests. However, during the development of IFRS 10, investors had noted that this procedure is not provided them with the information they need to evaluate their investments. The Exposure Draft, released, proposes criteria, which must be met by a company to qualify as an investment company. These companies would be exempt from the consolidation rules and comply with all its investments at fair value ("at fair value through profit or loss") to be evaluated.

The exposure draft also includes requirements for disclosures about the nature and the nature of these investments. This project was a cooperative effort between the IASB and the U.S. standard setter, the Financial Accounting Standards Board conducted (FASB). The proposals of both boards agree to a large extent. However, the FASB is considering proposing that the exception should be extended by the consolidation requirements of IFRS 10 cases in which the investment company is owned by a larger group, which itself is not an investment company. The FASB's exposure draft will publish in due course (Seymour W., Kharegat R., 2011, pp. 4).

Proposed Principles and Requirements in the Exposure Draft

IASB circulated three new rules in May for the consolidation of the financial statements of the exercises beginning on January 1, 2013 or thereafter. These standards are:

Consolidated Financial Statements: IFRS 10

Joint Arrangements: IFRS 11

Disclosure of shareholdings in other entities: IFRS 12

Current Standard IFRS 10 that is of Consolidated Financial Statements introduces a new definition control basis for inclusion in the scope of consolidation.

IFRS Joint Arrangements 11 defines the accounting for agreements governed by joint control. The option of applying the proportionate consolidation method is eliminated for joint ventures (understood in its new definition).

The shareholdings disclosure expressed in IFRS 12 of other entities in a standard meets all requirements of disclosures concerning joint arrangements, structured entities subsidiaries and associates entities. The new rules apply from fiscal years commencing from January 1, 2013, inclusive.

The changes will require greater use of judgment by the management ...