Financial Reporting Update Issue 72 – December 2012

Amendments to HKFRS 10, HKFRS 12 and HKAS 27, Consolidation relief for Investment entities

17 December 2012


In the Headlines Issue 2012/15


First Impressions: Consolidation relief for investment funds


Amendments to HKFRS 10, HKFRS 12 and HKAS 27




On 13 December 2012 the HKICPA issued amendments to HKFRS 10, Consolidated financial statements, HKFRS 12, Disclosure of interests in other entities and HKAS 27, Separate financial statements, to maintain convergence of HKFRS with IFRS.

The amendments are identical to those made to IFRS 10, IFRS 12, and IAS 27, issued by the IASB in October 2012, with the same effective date and transitional provisions. They are the IASB’s response to concerns expressed by preparers and users, that for certain types of investment entities fair value information is more useful and relevant than consolidated information.

Specifically, the amendments give relief from consolidation to those parents which meet all of the following criteria:

a)      the parent obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;

b)      the parent commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and

c)      the parent measures and evaluates the performance of substantially all of its investments on a fair value basis.

Such parents are referred to as “investment entities” in the amendments. The IASB has indicated that examples of investment entities could include private equity organisations, venture capital organisations, pension funds, sovereign wealth funds and other investment funds.

Under the amendments, investment entities are prohibited from consolidating their subsidiaries. Instead, they are required to carry their subsidiaries at fair value through profit or loss (“FVTPL”). The only subsidiaries that fall outside the FVTPL requirement are those subsidiaries which provide services which relate to the investment entity’s investment activities. Such service subsidiaries would still need to be consolidated by the investment entity.

The exemption from consolidation is only applicable to parents who qualify as investment entities in their own right. It does not carry upwards to parents higher up the group if those higher parents are not themselves investment entities. In such cases, the higher parents would have to consolidate all entities that it controls, including those controlled through an investment entity subsidiary.

The amendments also introduce new disclosure requirements for investment entities, in particular relating to any judgements that the entity made in determining that it is an investment entity.

Investment entities are required to apply the amendments, on a modified retrospective basis, for annual periods beginning on or after 1 January 2014. Earlier application is permitted. This may be of particular interest to investment entities who would otherwise need to start consolidating subsidiaries under HKFRS 10 as from 1 January 2013.

Further details of the amendments can be found in our In the Headlines publication (Issue 2012/15) while our First Impressions publication provides a more comprehensive guide to the new requirements and their practical implications. Copies of these publications, issued by KPMG International, are available on our website,, by following the links in the information column to the right. If you would like further assistance on the matters discussed, please talk with your usual KPMG contact.

KPMG China's Financial Reporting Updates are produced regularly to highlight developments in Hong Kong Financial Reporting Standards. If at any time you would like further information on the matters discussed in the Updates, please talk to your usual KPMG contact. An archive of recent issues of Financial Reporting Update can be found at




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