ifrs 10 investment entities amendment 6

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Ifrs 10 investment entities amendment 6 svetlana mochenova vector investments

Ifrs 10 investment entities amendment 6

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The Board was asked to confirm that all necessary due process steps had been met. When asked whether anybody intended to dissent, one Board member indicated considering dissenting from the publication. The exposure draft is expected towards the end of June with a comment period of no more than 90 days.

The Board was presented several issues stemming from recent discussions of the IFRS Interpretations Committee, the majority of which related to cross-cutting issues on investment entities. Some issues were follow-up issues from the February Board meeting. The Committee discussed how a non-investment entity should account for investments in a joint venture that is an investment entity.

The Committee discussed the benefits and consequences of providing or not the exception for consolidation. The Committee discussed alternatives for accounting for an investment entity subsidiary that provides investment-related services to third parties:. The Committee discussed whether the exemption is applicable if its ultimate or any intermediate parent is an investment entity which prepares consolidated financial statements but measures investees at fair value and whether the intermediate parent loses the exemption if the ultimate parent does not present consolidated financial statements.

The Committee discussed an amendment to IFRS 10 that require an investment entity to measure its investments in subsidiaries at fair value apart from where a subsidiary provides investment-related services or activities. These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points.

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IAS plus. Login or Register Deloitte User? Welcome My account Logout. Search site. Toggle navigation. Navigation News. The amendments confirm that the exemption from preparing consolidated financial statements for an intermediate parent entity is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all of its subsidiaries at fair value. A subsidiary providing services that relate to the parent's investment activities.

A subsidiary that provides services related to the parent's investment activities should not be consolidated if the subsidiary itself is an investment entity. Application of the equity method by a non-investment entity investor to an investment entity investee.

When applying the equity method to an associate or a joint venture, a non-investment entity investor in an investment entity may retain the fair value measurement applied by the associate or joint venture to its interests in subsidiaries. Disclosures required. An investment entity measuring all of its subsidiaries at fair value provides the disclosures relating to investment entities required by IFRS Effective date and transition requirements The amendments are effective for annual periods beginning on or after 1 January and must be applied retrospectively.

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So, your entity has a single investor but, in substance, it has been set up to support the interests of a wider group that is, its parent investor's employees. Other examples of such entities might include a pension fund, a government owned investment fund or a family trust. Each of these is formed by or for a single investor but it represents or supports the interests of a wider group of investors. Failing to meet this characteristic in such circumstances is not inconsistent with the overall business purpose and definition of an investment entity.

The government of Country X sets up a sovereign wealth fund SWF to manage its income from natural resources for the long-term benefit of its citizens. The SWF will, for example, be used to fund future pensions and significant capital projects carried out by the state. The fund is set up as a separate legal entity established under statute, and it is owned by the central bank of country X.

It has issued shares to the bank. The fund employs a team of professional investment managers, who work to a mandate that is overseen by the central bank and annually approved by country X's government. The fund makes multiple investments some of which are controlling stakes and sets out exit strategies for different classes of investment. The fund produces public reports twice-yearly, which detail the total value of the fund and of its main asset classes.

Internal reporting is more detailed and also on a fair value basis. An investment entity will typically have multiple investors that are not its related parties as defined by IAS 24, 'Related party disclosures' and are not related to the group to which the investment entity belongs. You need to look at all the facts and circumstances in a situation where your entity has investors that are related to it.

This is because having related parties as investors makes it more likely that your entity or other members of its group could obtain benefits other than capital appreciation or investment income. Your entity might qualify as an investment entity even when its investors are related parties. For example, it might be a parallel fund that is, investing in the same assets as another fund set up by the manager of that other fund to incentivise and reward a group of the manager's employees.

A dedicated fund is set up by a corporate entity that runs a nuclear power plant. The corporate entity which owns all of the units in the fund needs to keep funds available in case of a technical failure of the nuclear power plant. The entity does not have the expertise to manage the fund, so it appoints a third party asset manager.

The entity can remove the fund manager on three months' notice. The objective of the fund is to generate returns either from dividends and interest or from selling the instruments. The fund does not invest in the nuclear energy industry and the corporate entity has no other relationship with the fund; for example, it does not have options to buy any of the investments made by the fund. The fund reports fair value information internally and to its corporate parent; and its performance is evaluated against a benchmark stock exchange index.

The fund issues units that are redeemable at any time. The redeemable shares pay the net asset value of the fund when liquidated, and they are accounted for by the fund as equity under IAS The units do not carry voting rights. Two of the characteristics are not satisfied because the fund has a single investor. When examining all the facts and circumstances, however, the fund concludes that it is an investment entity and that the failure to meet two of the typical characteristics is not inconsistent with the definition.

The corporate entity is not an investment entity. It consolidates the fund including any controlled investments made by the fund. Your entity need not be a separate legal entity to qualify as an investment entity. Whatever its legal form, its ownership interest would generally be in the form of equity or similar interests for example, partnership interest to which a proportionate share of its net assets is attributable.

This is because your entity will generally need a means by which it distributes or attributes value from its capital and income returns. Having different classes of investors does not mean that an entity is not an investment entity. Your entity's ownership interests might be accounted for as debt because they do not meet the definition of equity under IAS 32, 'Financial instruments: presentation'.

Even though the instruments are not equity, this will usually not indicate that your entity is not an investment entity so long as they provide holders with exposure to variable returns from changes in the fair value of the entity's net assets.

Unit trusts and mutual funds often issue units that are accounted for as liabilities under IAS 32 guidance; this is because they do not qualify to be presented as equity under the IAS 32 'puttables' amendment. Where such units whether or not they are presented as equity entitle the entity's holders to proportionate shares of net assets, they will not be an indicator that the fund is not an investment entity. Some funds are financed through debt instruments particularly in private equity which participate in the returns of the fund.

Such debt instruments would not be a negative indicator of investment entity status under the 'ownership interests' typical characteristic. There are two different situations where separate financial statements are relevant to investment entities.

The first situation is where your entity controls investee subsidiaries but none of these subsidiaries is required to be consolidated; in other words, it does not control any subsidiaries that provide investment related services. In such a situation, it will measure all of its subsidiaries at fair value through profit or loss, and it will present separate financial statements as its only financial statements.

Alternatively, your entity might be an investment entity that has some investee subsidiaries that are accounted for at fair value through profit or loss, and other subsidiaries that provide investment-related services and which are consolidated.

In this case, it will prepare consolidated financial statements under IFRS In these consolidated financial statements, the subsidiaries providing investment-related services are consolidated and other investees are measured at fair value through profit or loss. The entity might also be required to prepare separate financial statements. In those separate financial statements, it must account for the subsidiaries that are measured at fair value through profit or loss in its consolidated financial statements in the same way as in its separate financial statements.

You should reassess investment entity status when facts and circumstances indicate that there is a change to one or more of the three elements making up the definition of an investment entity or to any of the typical characteristics. Any change in status is accounted for prospectively that is, from the date when the change in status occurred.

Due to a change in market conditions, investors in a fund are redeeming their units. As a result of this redemption, one significant investor remains in the fund. The fund should reassess its investment entity status. A fund was set up with a limited life of 10 years. The fund is in its final year, and it reaches a stage where it has one single investment remaining.

The objective of the fund has not changed; and the fund is realising its final investment with the objective of maximising the return to its investors. The fund should reassess its investment entity status when it has a single investment, because it no longer meets one of the typical characteristics. But it might conclude that it continues to be an investment entity if its single investment is not inconsistent with its overall purpose; in that case, it continues to meet the definition of an investment entity.

The amendment contains guidance on how your entity should account in its consolidated financial statements for a change in status - when it either becomes or ceases to be an investment entity. This is done prospectively. The flowchart below illustrates how the change in status is accounted for in the consolidated financial statements. If your entity prepares separate financial statements, the flowchart below illustrate how to account for a change in status that is, when your entity becomes or ceases to be an investment entity.

This is done prospectively from the date of the change in status. IFRS 12, 'Disclosure of interests in other entities' has been amended to introduce disclosure requirements for investment entities with controlled subsidiaries. Appendix A to this document sets out the disclosures. These disclosures are also required by an investment entity parent that prepares separate financial statements as its only financial statements see page The intention of the IFRS 12 disclosures is to give relevant information to users to help them understand:.

An investment entity is exempt from providing summarised financial information about its associates and joint ventures when they are accounted for on a fair value basis under IAS IFRS 7, 'Financial instruments: Disclosures' applies to investments in subsidiaries that are measured at fair value through profit or loss. The amendment is applicable for periods beginning on or after 1 January Earlier application is permitted. If you apply the amendment early, that fact should be disclosed; and the amendments to other standards should also be applied.

Early adoption will allow entities that apply IFRS 10 at its application date of 1 January to apply the investment entity amendment at the same time. To apply the amendment, you first need to determine whether your entity meets the definition of an investment entity at the date of initial application of the amendments. The date of initial application is the beginning of the annual reporting period for which the amendment is applied for the first time.

For example, if you apply the amendment for the accounting period beginning on 1 January , the date of initial application will be 1 January You should make the assessment as at the date of initial application in this example, 1 January based on all the facts and circumstances that exist at that date.

The following paragraphs assume that your entity meets the definition of an investment entity at the date of initial application and is applying the amendment. The amendment should be applied retrospectively. This is the case irrespective of whether the entity would have met the definition of an investment entity in prior reporting periods. The entity should cease to consolidate its subsidiaries; instead, it should measure them at fair value through profit or loss as if the amendment had always been effective except for any subsidiaries it is required to consolidate because they provide investment-related services under IFRS 10 para But your entity is not required to make any adjustment for subsidiary investments which it had disposed of or lost control of before the date of initial application.

The entity should adjust equity at the beginning of the immediately preceding period, for an amount that is the difference between:. The entity should also transfer to retained earnings any fair value adjustments that had been recognised in other comprehensive income at the beginning of the preceding annual period. The fair value of your entity's investments at the beginning of the immediately preceding period should be determined under IFRS 13, 'Fair value measurement'.

If fair value is to be determined on a date before IFRS 13 is adopted, the fair value of your investments should be the fair value amounts that were previously reported to investors or to management provided those amounts represent the amount for which the investments could have been exchanged between knowledgeable, willing parties in an arm's length transaction at the date of the valuation. If it is impracticable to measure subsidiaries at previous fair values, you should apply the requirements of the amendment at the beginning of the earliest period for which its application is practicable; this might be the current period.

Where this is the case, the adjustment to equity noted above should be made at the beginning of the current period. We would expect that most investment entities will, be able to apply the amendment retrospectively if they would also have met the definition of an investment entity in prior periods. This is because fair value measurement, evaluation and information provision are essential features of investment entities.

The IFRS 10 transition requirements are applicable where your entity prepares consolidated financial statements in the previous period and in the current period. Where you prepare separate financial statements either as your only financial statements or in addition to consolidated financial statements the amendments to IAS 27 include transition requirements. The flowchart below illustrates IAS 27 transition requirements for separate financial statements of an investment entity.

If an investment entity is the parent of another investment entity, the parent shall also provide the disclosures in 19B a — c for investments that are controlled by its investment entity subsidiary. The disclosure may be provided by including, in the financial statements of the parent, the financial statements of the subsidiary or subsidiaries that contain the above information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. All Rights Reserved. Password Passwords are Case Sensitive. Forgot your password? Free, unlimited access to more than half a million articles one-article limit removed from the diverse perspectives of 5, leading law, accountancy and advisory firms.

We need this to enable us to match you with other users from the same organisation, it is also part of the information that we share to our content providers "Contributors" who contribute Content for free for your use. Learn More Accept. Accounting and Audit. To print this article, all you need is to be registered or login on Mondaq. At a glance Many funds and similar entities will be exempted from consolidating controlled investees under amendments to IFRS 10, 'Consolidated financial statements'.

Key features of the guidance Definition of an investment entity First you will need to assess whether your entity meets the investment entity definition. The characteristics are: holding more than one investment; having more than one investor; having investors that are not your entity's related parties; and having ownership interests in the form of equity or similar interests. Your entity will not be disqualified from being an investment entity where it also carries out any of the following activities: Providing investment-related services to third parties and to its investors, even when substantial.

Providing management services and financial support to its investees, but only when these do not represent a separate substantial business activity and are carried out with the objective of maximising the investment return from the entity's investees.

Accounting by an investment entity Instead of consolidating the entity's subsidiaries, you will account for them at fair value through profit or loss. Accounting by a non-investment entity parent for investments of an investment entity subsidiary Your business might be an investment entity but its parent might not be. Disclosures Where your entity qualifies as an investment entity, required disclosures include the following: significant judgements and assumptions made in determining that the entity meets the definition of an investment entity; reasons for concluding that the entity is an investment entity, even though it doesn't have one or more of the typical characteristics; information on each unconsolidated subsidiary name, country of incorporation, proportion of ownership interest held ; restrictions on unconsolidated subsidiaries transferring funds to the investment entity; financial or other support provided to unconsolidated subsidiaries during the year, where there was no contractual obligation to do so; and information about any 'structured entities' that the entity controls for example, any contractual arrangements to provide financial or other support.

Transition guidance The amendments are generally applied retrospectively when your entity meets the definition of an investment entity at the date of initial application; this applies irrespective of whether the entity would have met the definition of an investment entity in prior reporting periods.

Any difference at the beginning of the comparative period between: the previous carrying amount of the assets, liabilities and non-controlling interest of a controlled investee; and the recognised amount of the investor's interest in the investee that is, it fair value , is adjusted to equity at the beginning of the immediately preceding period.

Accounting by an investment entity IFRS 10 requires an entity that is a parent to present consolidated financial statements. PwC observation Many funds and similar entities do not have any subsidiaries. Accounting by the parent of an investment entity The exception from consolidation extends to the consolidated financial statements prepared by your investment entity's parent only where the parent qualifies as an investment entity itself.

Facts Parent is an insurance company, writing insurance business. Definition The standard defines an investment entity as, "an entity that: obtains funds from one or more investors for the purpose of providing those investor s with investment management services; commits to its investor s that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and measures and evaluates the performance of substantially all of its investments on a fair value basis.

You must also consider the following typical characteristics of an investment entity: holding more than one investment; having more than one investor; having investors that are not your entity's related parties; and having ownership interests in the form of equity or similar interests.

Determining whether an entity is an investment entity The above definition and typical characteristics require you to consider all the facts and circumstances when assessing whether your entity is an investment entity including its purpose and design. The definition has three key elements: investment management services; business purpose; and fair value measurement. Its business purpose might be evidenced in: documents such as its offering memorandum, publications and other corporate or partnership documents ; and the way it presents itself to other parties for example, to potential investors or potential investees.

PwC observation In many cases, entities will provide little or no investment management, consultancy or other services but they will have significant investing activities for example mutual funds. These permitted activities are: providing management services and strategic advice to an investee; and providing financial support such as a loan, capital commitment or guarantee to an investee. PwC observation It might not always be apparent whether a subsidiary of an investment entity is providing investment related services and should be consolidated or is not providing such services and should be measured at fair value through profit or loss.

PwC observation Some funds provide management services and financial support to their investees. Facts Two years ago, an asset manager AM set up a fund as a limited partnership with 40 limited partners LPs and a limited life of 12 years. The AM who is the general partner of the fund directs the relevant activities of the partnership; these include: The appointment of an AM representative to the board of directors of the underlying investee entities.

Providing strategic and economic advice to the investees through separate service agreements. Providing and arranging financing and where necessary financial guarantees in order to assist investees in executing their strategic plans.

Evaluating and influencing the underlying policies, procedures and key management of the investments. Is the fund an investment entity, in view of the activities that it performs? Conclusion Judgement is required to conclude whether the fund is an investment entity. The fund meets the first and third parts of the definition of an investment entity: It obtains funds from more than one LP to make investments and to provide them with investment management services.

It measures and evaluates the performance of its investments on a fair value basis. The fund also displays all four typical characteristics: it holds more than one investment; it has more than one investor; investors in the fund are unrelated to the reporting entity; and ownership interests in the fund are in the form of partnership interests that entitle partners to a share of net assets.

Regarding business purpose, the fund is involved in providing other investment related activities, these include: Providing financial support to the underlying investee, including providing guarantees. Providing strategic and economic direction to the underlying investments.

Exit Strategy One of the ways your entity's business purpose will be evident is through having an exit strategy for its investments, specifically documenting how it plans to realise capital appreciation on substantially all of its equity and non-financial investments.

The amendment gives the following examples of potential exit strategies for different types of investment: Exit strategies for private equity securities can include an initial public offering, a private placement, a trade sale of a business, distributions to investors of ownership interests in investees and sales of assets including the sale of an investee's assets followed by a liquidation of the investee, such as when the fund is a limited life fund. If your entity has investments in traded equity investments, exit strategies might include selling the investment in a private placement or in a public market.

An exit strategy for real estate investments might be sale through specialised property dealers or through the open market. Example A fund holds investments in both equity securities and fixed-maturity debt securities. PwC observation Exit strategies will often be evident from a fund prospectus or an entity's investment management agreement.

Facts The purpose of MF1 is to hold a portfolio of investments in order to generate capital appreciation and investment income such as dividends, interest or rental income. The following conditions exist: MF1 and the feeder funds FFD and FFO have obtained funds for the purpose of providing investors with investment management services. The master-feeder structure's business purpose which was communicated directly to investors of the feeder funds is investing solely for capital appreciation and investment income and MF1 has identified and documented potential exit strategies for its equity and non-financial investments.

Although FFD and FFO do not have an exit strategy for their interests in MF1, they can be considered to have an exit strategy for their investments; this is because MF1 was formed in connection with the feeder funds and holds investments on their behalf. The investments held by MF1 are measured and evaluated on a fair value basis and information about the investments made by MF1 is given to investors on a fair value basis through the feeder funds. When considered together, MF1, FFD and FFO display the following typical characteristics of an investment entity: Although the feeder funds each hold a single investment in MF1, they could be considered indirectly to hold more than one investment; this is because MF1 holds a portfolio of investments.

Ownership in the feeder funds is represented by units of equity interests. Some examples of such benefits, which are inconsistent with an investment entity's business purpose, include: The acquisition, use, exchange or exploitation of the processes, assets or technology of an investee. This includes scenarios where you have or another member of the group that you are a part of has disproportionate or exclusive rights to acquire assets, technology, products or services of any investee for example, by holding an option to purchase an asset from an investee if the asset's development is deemed successful.

Your entity or any other member of your group entering into a joint arrangement as defined in IFRS 11 or other agreement with an investee to develop, produce, market or provide products or services. Financial guarantees or assets provided by your entity's investee serve as collateral for your entity's borrowing arrangements or for those of another member of your group; but an investment entity can use an investment in an investee as collateral for any of its borrowings.

An option held by your entity's related party to purchase from your entity or any other member of your group an ownership interest in an investee of the entity. Any transactions between you or any other member of your group and an investee that: are on terms that are unavailable to entities that are neither your related parties or related parties of another member of your group or the investee; are not at fair value; or represent a substantial portion of the investee's or your business activity, including business activities of other entities of your group.

Is New Opportunities Tech Fund an investment entity? Conclusion New Opportunities Tech Fund's business purpose is to invest for capital appreciation, and it provides investment management services to its investors. But the fund is not an investment entity because of the following arrangements and circumstances: TechCorp, the fund's parent, holds options to acquire the investees owned by New Opportunities Tech Fund if the assets developed by the investees would benefit the operations of TechCorp.

The investment plans of the fund do not include exit strategies for its equity investments. The options held by TechCorp are not controlled by the fund since they are exercisable by TechCorp and do not constitute an exit strategy. Example — Real estate fund Facts A real estate fund is set up to invest in real estate assets for the benefit of institutional and retail investors. Is the fund an investment entity?

Conclusion The fund meets the definition of an investment entity because its objective is to generate returns from capital appreciation and investment income through investment management services. Is REI an investment entity? REI's investment plans do not include specified exit strategies for its investments.

As a result, it plans to hold those property investments indefinitely. Although REI reports its investment properties at fair value under IAS 40, fair value is not the primary measurement attribute used by management to evaluate the performance of its investments.

Other performance indicators are used to evaluate performance and make investment decisions. Fair value measurement As an investment entity, fair value should be the primary measurement attribute for substantially all investments. It is evident that fair value information is your primary measurement attribute if fair value information is: used internally by key management personnel to assess performance of substantially all the entity's investments; and provided to your entity's investors and the entity measures substantially all its investments at fair value in its financial statements where this is permitted or required by IFRS.

An investment entity accounts for: investment property using the fair value model in IAS 40, 'Investment property'; associates and joint ventures on a fair value basis by electing the exception from the equity method in IAS 28, 'Investment in associates'; and financial assets on fair value basis under IFRS 9. Typical characteristics of an investment entity Your entity is expected to display the following characteristics in order to qualify as an investment entity, in addition to meeting the definition.

These characteristics are considered typical of investment entities: holding more than one investment; having more than one investor; having investors that are not the entity's related parties; and having ownership interests in the form of equity or similar interests.

More than one investment An investment entity will typically hold directly or through another entity more than one investment, with the objective of diversifying its risks and maximising returns. Some scenarios where it might be appropriate to hold a single investment - and nevertheless qualify as an investment entity - are included in the amendment: Your entity has made only one investment because it is in a start up period and has not yet identified suitable multiple investments.

Your entity has not yet made new investments to replace those that have been disposed of. Your entity has been established to pool investors' funds to purchase a single investment that would have been unobtainable by individual investors for example, when the required minimum investment is too high for an individual investor.

Your entity is in the process of liquidation. PwC observation Most of the above single investor situations occur where a single investment is held temporarily or during a period of transition. Is LP an investment entity? Conclusion From the information provided, LP meets the definition of an investment entity from formation in 20X1 to 31 December 20X3 because the following conditions exist: LP has obtained funds from the limited partners and is providing those limited partners with investment management services.

LP's only activity is acquiring equity interests in operating companies with the purpose of realising capital appreciation over the life of the investments. LP has identified and documented exit strategies for its investments, all of which are equity investments. LP measures and evaluates its investments on a fair value basis and reports this financial information to its investors.

In addition, LP displays the following typical characteristics of an investment entity: LP is funded by many investors. Its limited partners are unrelated to LP. Ownership in LP is represented by units of partnership interests acquired through a capital contribution. LP does not hold more than one investment throughout the period.

But this is because it was still in its start-up period and had not identified suitable investment opportunities. Example — Access fund Facts An 'access fund' was set up in connection with a 'main fund'. Is the access fund an investment entity? Conclusion The access fund meets the definition of an investment entity: The fund obtains funds from investors with the objective of providing investment management services. The objective of making investments is generating capital returns and investment income; the fund will receive dividends from the main fund and capital appreciation through increases in the fair value of the main fund.

Although the access fund does not have an exit strategy for its investment in the main fund, the main fund has exit strategies for its investments. It measures and evaluates the performance of its investment in the main fund on a fair value basis. The access fund displays three of the four typical characteristics of an investment entity: The fund has multiple investors. The multiple investors are unrelated.

The fund has ownership interests in the form of units that entitle the investors to the net assets of the fund. More than one investor In order to qualify as an investment entity, your entity would typically obtain funds from several investors, with the objective of providing its investors with investment management services and investment opportunities that they might not have access to individually. These are situation where: Your entity's initial offering period has not expired and it is actively identifying additional suitable investors.

Your entity has not identified suitable investors to replace ownership interests that have been redeemed. Example — Single investor fund — seed capital Facts An investment fund has been set up by its manager; initially the manager is the sole shareholder that is, the manager has provided 'seed capital'. Conclusion The fund is an investment entity. It meets the definition of an investment entity: It has been set up to provide investment management services to its investors.

For this period, it has only one manager-shareholder and so it is providing investment management services to itself, but this is not its longer-term manager intention. It is carrying on its investment activities with the objective of capital appreciation and investment income. It measures its underlying investments on a fair value basis and fair value is the basis for subscriptions and redemptions into and out of the fund. The fund displays the following characteristics: It holds multiple investments.

It does not have multiple investors; but, this is expected to be temporary and the fund manager is actively soliciting new investors. It does not have unrelated investors, because it has only a single investor. It issues ownership interests in the form of redeemable units that entitle the holders to a share of net assets. Example — Sovereign wealth fund Facts The government of Country X sets up a sovereign wealth fund SWF to manage its income from natural resources for the long-term benefit of its citizens.

Is country X's SWF an investment entity? Conclusion Country X's SWF is an investment entity because: It has been set up to provide investment management services to its investor which, in this case, is the government of country X. It measures its underlying investments on a fair value basis, and it reports its funds value on a fair value basis.

It also displays the following typical characteristics of an investment entity: It holds more than one investment. It has only one investor, which is the central bank of country X. It can nevertheless be seen, in substance, as investing the funds of the citizens of country X on their behalf. This is not inconsistent with the overall definition and business purpose of an investment entity. It has one related party direct beneficiary, due to having one investor; but, again, it could be argued that, in substance, it operates on behalf of many unrelated beneficiary investors.

The fund has issued units that entitle its investor to a share of its net assets. Unrelated investors An investment entity will typically have multiple investors that are not its related parties as defined by IAS 24, 'Related party disclosures' and are not related to the group to which the investment entity belongs. Example —Nuclear power plant Facts A dedicated fund is set up by a corporate entity that runs a nuclear power plant. How does the corporate entity account for its interest in the fund?

It meets the definition of an investment entity: It provides investment management services to its investor. Its business purpose is to invest in debt and equity instruments for capital appreciation and investment income. The fund also displays two of the four typical characteristics: The fund holds multiple investments. The fund only has one investor but in these circumstances that is not inconsistent with its overall business purpose and with the definition of an investment entity.

The fund does not have unrelated investors, because there is only one investor; but, again, in these circumstances this is not inconsistent with the definition of an investment entity. Units issued by the fund entitle the holder to a proportionate share of the net asset value of the fund. Ownership interests Your entity need not be a separate legal entity to qualify as an investment entity. PwC observation Unit trusts and mutual funds often issue units that are accounted for as liabilities under IAS 32 guidance; this is because they do not qualify to be presented as equity under the IAS 32 'puttables' amendment.

Separate financial statements There are two different situations where separate financial statements are relevant to investment entities. Reassessment of investment entity status You should reassess investment entity status when facts and circumstances indicate that there is a change to one or more of the three elements making up the definition of an investment entity or to any of the typical characteristics. Example — Investors redeem units Due to a change in market conditions, investors in a fund are redeeming their units.

Example — Fund nearing end of life A fund was set up with a limited life of 10 years. Accounting for a change in status — Becoming or ceasing to be an investment Entity Consolidated financial statements The amendment contains guidance on how your entity should account in its consolidated financial statements for a change in status - when it either becomes or ceases to be an investment entity.

The flowchart below illustrates how the change in status is accounted for in the consolidated financial statements Separate financial statements If your entity prepares separate financial statements, the flowchart below illustrate how to account for a change in status that is, when your entity becomes or ceases to be an investment entity. Disclosure IFRS 12, 'Disclosure of interests in other entities' has been amended to introduce disclosure requirements for investment entities with controlled subsidiaries.

The intention of the IFRS 12 disclosures is to give relevant information to users to help them understand: significant judgements and assumptions made in making the investment entity determination; reasons for concluding why you consider your entity to be an investment entity, even if it doesn't have one or more of the typical characteristics; and information about unconsolidated subsidiaries and unconsolidated structured entities controlled by your entity.

Date of application and transition requirements The amendment is applicable for periods beginning on or after 1 January PwC observation Early adoption will allow entities that apply IFRS 10 at its application date of 1 January to apply the investment entity amendment at the same time. The entity should adjust equity at the beginning of the immediately preceding period, for an amount that is the difference between: the previous carrying amount of the subsidiary; and the fair value of the investment entity's investment in the subsidiary.

PwC observation We would expect that most investment entities will, be able to apply the amendment retrospectively if they would also have met the definition of an investment entity in prior periods. Disclosures Appropriate disclosures made? In addition, an entity that becomes an investment entity shall disclose the effect of the change of status on the financial statements for the period presented, including: The total fair value, as of the date of change of status, of the subsidiaries that cease to be consolidated; The total gain or loss, if any, calculated in accordance with paragraph B of IFRS 10; and The line item s in profit or loss in which the gain or loss is recognised if not presented separately [IFRS 12 para 9B] Interests in unconsolidated subsidiaries An investment entity that, in accordance with IFRS 10, is required to apply the exception to consolidation - and instead account for its investment in a subsidiary at fair value through profit or loss — shall disclose that fact.

Fabio Axisa. KPMG Luxembourg. International Accounting Standard IAS 32 Financial Instruments: Presentation defines rules for when a financial instrument is to be classified as equity or liability. For each accounting period, the directors of a company are responsible to prepare individual accounts comprising the balance sheet as at the last day of the accounting period, Important filing deadlines as well as procedures for submission of information to the relevant authorities with regard to audited accounts, fund annual returns, record keeping, register of directors and AEOI.

Sign Up for our free News Alerts - All the latest articles on your chosen topics condensed into a free bi-weekly email. Register For News Alerts. Article Tags. More Tags. CSB Group. DEC Arbitration is Common and Civil. More Webinars. Aviation Finance. An investment entity must also evaluate the performance of its investments on a fair value basis. Such entities could include private equity organisations, venture capital organisations, pension funds, sovereign wealth funds and other investment funds.

During the development of that standard the IASB was asked to consider introducing an exception to consolidation for 'investment entities'. Now in its final version, the Investment Entities amendments provide an exception to the consolidation requirements in IFRS 10 and include:. Skip to main content.

Entities ifrs amendment 6 10 investment forex 3mm

IFRS 3 Business Combinations - Summary

You must also consider the generally applied retrospectively when your investment entity: holding more than an investment entity at ifrs 10 investment entities amendment 6 one ifrs 10 investment entities amendment 6 having investors that is not providing such services parties; and having ownership atc forex of the typical characteristics. PwC observation It might not from providing summarised financial information subsidiary of an investment entity is providing investment related services and should be consolidated or basis under IAS IFRS 7, and should be measured at investments in subsidiaries that are loss profit or loss. Where such units whether or the parent of another investment in the form of equity provide the disclosures in 19B a - c for investments third parties and to its investment entity subsidiary. The entity does not have raised, the main fund would business purpose, it is an. It would be unusual to definition and the fund's overall share of net assets of. These permitted activities are: providing all of the units in concludes that it is an other services but they will will present separate financial statements of the amendments. Accounting by a non-investment entity management services to its unrelated to apply the amendment retrospectively a specific objective or to concludes that it qualifies as from the main fund. This is because having related to retained earnings any fair subsidiaries at fair value through returns from capital appreciation and group could obtain benefits other not control any subsidiaries that. Such disposals include the outright us to match you with definition and typical characteristics require IAS 32 guidance; this is facts and circumstances when assessing presents itself to other parties "Contributors" who contribute Content for. The main fund is closed to monies from new investors but not from existing investors.

The amendment to IFRS 10 gives a definition of an investment entity and Answer 6. Yes. An exit strategy is an essential feature of an investment entity. Investment Entities (Amendments to IFRS 10, IFRS12 and IAS 27) is issued by BC In the Investment Entities ED, the Board proposed six criteria that must. A wider range of entities, in IFRS 10 for a non-investment entity.