Dataline: Investing in a new investment company definition -- FASB proposes to align investment company definition with IFRS proposal (No. 2011-32)

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Dataline / In depth 11/08/2011 by Assurance services
Dataline: Investing in a new investment company definition -- FASB proposes to align investment company definition with IFRS proposal (No. 2011-32)

At a glance

On October 21, 2011, the FASB issued a proposal to (1) amend the criteria for determining whether an entity is an investment company and (2) address when an investment company should apply consolidation accounting. The proposal would apply to an entity's interim and annual reporting periods in fiscal years that begin after the effective date, which has not been determined. Comments on the FASB's proposal (and a related proposal issued by the IASB) are due January 5, 2012. This Dataline takes a look at the key provisions of the proposal and shares our observations on it.

On October 21, 2011, the FASB issued a proposal to (1) amend the criteria for determining whether an entity is an investment company and (2) address when an investment company should apply consolidation accounting. Under the proposal, investment companies would continue to measure their investments at fair value, including any investments in which they have a controlling financial interest. However, investment companies would be required to consolidate any other investment companies or investment property entities in which they have a controlling financial interest.

The new definition of an investment company was developed jointly with the IASB. The IASB issued its proposal in August 2011. While the criteria to qualify as an investment company are substantially similar, some key differences exist between the boards' respective proposals. Most notably, the IASB would not retain investment company accounting in consolidation by a non-investment company parent, and all investments would be measured at fair value even if they represent a controlling financial interest in another investment company.

The proposal would apply to an entity's interim and annual reporting periods in fiscal years that begin after the effective date, which has not been determined. Comments on both the FASB and IASB's proposals are due January 5, 2012.

This Dataline takes a look at the key provisions of the proposal and shares our observations on it.