January 5 Deadline for Entities Reporting Under IFRS To Respond to Draft Fair Value Regulation

Background The IASB recently published an Exposure Draft (ED), Investment Entities, proposing an exception to the IFRS principle that a reporting entity must consolidate all controlled entities. The ED proposes that an investment entity measure all controlled investments at fair value, with changes recorded in earnings. To comment on the IASB's ED, please click here. Definition of an investment entity The proposed definition of an investment entity is based on the definition under current U.S. GAAP. According to the ED, the following criteria must be met: Provides financial information: The entity provides financial information about its investment activities to its investors. Fair value: Most of the investments are managed on a fair value basis, including performance. Pooling of funds: Funds are pooled for investment management purposes. Business activity: The entity's main activity is investing in multiple investments for capital appreciation, to make distributions, or both. Unit of ownership: Ownership is represented in investment units that hold a proportionate share of net assets. Business purpose: The entity commits to a group of investors that its purpose is to provide returns from capital appreciation, to make distributions or both. Convergence with U.S. GAAP This proposal further aligns U.S. GAAP and IFRS for investment company accounting. One major difference that remains is that U.S. GAAP has a practical expedient to measure the fair value of certain investments using NAV. The IASB neither currently permits nor proposes any such practical expedient in the ED. Conclusion If you deal with investment companies and you report under IFRS, or if you are moving toward IFRS, this alert is of critical importance to you. While most companies support the proposal, some would rather have controlled entities continue to be consolidated under IFRS and not measure fair valued through changes in earnings. Please contact Pluris to discuss accounting and valuation alternatives. Pluris has extensive experience with IFRS and can assist you in determining the best course of action.