Proposed changes to IFRS 10 and IAS 28

The Exposure Draft proposes amendments to IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 ‘Investments in Associates and Joint Ventures’, addressing three issues which had been submitted to the IFRS Interpretations Committee (IFRIC) related to the implementation of the consolidation exception for investment entities. The proposals are as follows:

• exemption from preparing consolidated financial statements - the Exposure Draft proposes to amend IFRS 10 to confirm that the exemption in IFRS 10.4(a) continues to be available to a parent entity that is a subsidiary of an investment entity, even when the investment entity measures its subsidiaries at fair value in accordance with IFRS 10.31.
• a subsidiary that provides services that relate to the parent's Investment activities – the Exposure Draft proposes that the requirement for an investment entity to consolidate a subsidiary, instead of measuring it at fair value, applies only to those subsidiaries that act as an extension of the operations of the investment entity parent, and do not themselves qualify as investment entities. The main purpose of such a subsidiary is to provide support services that relate to the investment entity’s investment activities (which may include providing investment-related services to third parties).
• application of the equity method by a non-Investment entity Investor t and Investment entity Investee - the IASB proposes to amend IAS 28 to:
• provide relief to a non-investment entity investor by requiring it to retain, when applying the equity method, the fair value measurement applied by an investment entity associate to its interests in subsidiaries; and
• clarify that a non-investment entity investor that is a joint venturer in a joint venture that is an investment entity cannot, when applying the equity method, retain the fair value measurement applied by the investment entity joint venture to its interests in subsidiaries.

In our comment letter we concur with the proposed amendments subject to a number of observations which we include within our comments.