The International Accounting Standards Board (IASB) has issued Investment Entities (Amendments to IFRS 10, Consolidated Financial Statements, IFRS 12 and IAS 27), which apply to a particular class of business that qualify as investment entities.

The IASB uses the term 'investment entity' to refer to an entity whose business purpose is to invest funds solely for returns from capital appreciation, investment income or both. 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.

It has been a longstanding requirement in IFRS that a reporting entity must present financial statements consolidating all of its subsidiaries.

IFRS 10 Consolidated Financial Statements is the IASB's most recent pronouncement on consolidated financial statements. During the development of that standard the IASB was asked to consider introducing an exception to consolidation for 'investment entities'.

In February 2010, the IASB, together with the US Financial Accounting Standards Board (FASB), began examining the possibility of creating such an exception. In August 2011, the IASB issued an Exposure Draft, Investment Entities ('the ED'), for public comment.

Now in its final version, the Investment Entities amendments provide an exception to the consolidation requirements in IFRS 10 and include:

• the creation of a definition of an investment entity;
• the requirement that such entities measure investments in subsidiaries at fair value through profit or loss instead of consolidating them;
• new disclosure requirements for investment entities; and
• requirements for an investment entity's separate financial statements.

Hans Hoogervorst, chairman of the IASB, said: 'These amendments have been introduced as a result of requests from preparers and users in the investment entity industry. Having listened to the feedback we received, we expect the changes to significantly improve the quality of financial reporting in this area, enhancing transparency and comparability both within and between investment entities.'The amendments are effective from 1 January 2014 with early adoption permitted. This is one year later than the 1 January 2013 effective date of IFRS 10, but the IASB has permitted early adoption in order to allow investment entities to apply the Investment Entities amendments at the same time they first apply the rest of IFRS 10.