The transparency of the accounts of investment entities will be improved if proposals to amend the way they present their investments are adopted. However more work needs to be done to make the new rules easier to understand and implement, says ACCA (the Association of Chartered Certified Accountants).
The proposals of the IASB (International Accounting Standards Board) concern the accounting by investment entities – basically companies which hold a subsidiary for its investment income and gains.
The IASB is currently carrying out a series of roundtables to discuss the proposals - the general consultation period has closed.
ACCA has questioned some of the IASB’s suggestions, which aim both to specify the criteria for determining when an entity is an investment entity, and to set out how an investment entity accounts for its investments.
The proposals are that an investment entity should not consolidate the entities it controls for investment purposes, but should account for these at fair value, with changes in that value being recognised in profit or loss.
ACCA’s belief is some of the details in the proposals need to be explained further or amended, so it welcomes the fact that roundtables have been organised by the IASB.
Richard Martin, head of corporate reporting at ACCA, says: 'The definition of an investment entity - one which invests in a subsidiary for long or short term financial gain – needs to be considered further. However, ACCA agrees that investment entities’ financial statements would provide more meaningful information if they do not consolidate entities which are controlled by them, and in which the interest is held only for investment purposes.'
Richard Martin added: 'We have a further concern, and that centres on the issue of control. How often does an investment entity, as a significant stakeholder, actually control its investee?
'On the whole ACCA agrees with what the Board intends to do, but there are a few matters we feel should be amended or explained in more detail, so there is a clearer picture of what will be happening once the Standard comes into force.'
The finalised International Financial Reporting Standard on investment entities is expected to be published by the IASB in the second-half of 2012.
To find out more about investment entities, visit the IFRS/IASB website in the 'Related Links' section.