MCA notifies amendments to the consolidation exception for investment entities

MCA notifies amendments to the consolidation

Currently under Ind AS, investment entities are exempt from consolidating their subsidiaries and are required to measure such an investment at fair value through profit or loss (as per Ind AS 109, Financial Instruments). Investment entities are also required to measure their investments in associates and joint ventures at fair value through profit or loss.

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Background

Currently under Ind AS, investment entities are exempt from consolidating their subsidiaries and are required to measure such an investment at fair value through profit or loss (as per Ind AS 109, Financial Instruments). Investment entities are also required to measure their investments in associates and joint ventures at fair value through profit or loss.

However, there was some uncertainty surrounding the interpretation of this consolidation exception in certain circumstances, when applied in practice internationally. These amendments address those situations and are expected to reduce diversity in practice.

New development

On 30 March 2016, the Ministry of Corporate Affairs (MCA) notified the Companies (Indian Accounting Standards) (Amendments) Rules, 2016 (Ind AS), which included amendments to the following standards:

  • Ind AS 110, Consolidated Financial Statements
  • Ind AS 112, Disclosure of Interests in Other Entities, and
  • Ind AS 28, Investments in Associates and Joint Ventures.

These amendments provide additional guidance and clarity when applying the consolidation exception for investment entities. They are based on identical amendments that were made to the corresponding International Financial Reporting Standards (IFRS) in December 2014, which are applicable for accounting periods beginning on or after 1 January 2016 internationally.

The Ind AS amendments would apply from accounting periods beginning from 1 April 2016 onwards and shall result in convergence with the currently applicable IFRS.

This issue of IFRS Note provides an overview of the recent amendments made by the MCA.

To access the text of the MCA notification, please click here.

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