March 18, 2009
International Accounting Standards Board
30 Cannon Street
London
EC4M 6XH
United Kingdom
Dear Sirs:
Re: ED 10, Consolidated Financial Statements
The undersigned institutional fund managers (“we” and “us”) would like to take this opportunity
to respond to the Exposure Draft 10, Consolidated Financial Statements (“ED 10”). We are
responding to Question 2 of the Invitation to Comment – whether the proposal to require
consolidation of subsidiaries is appropriate in all circumstances.
We have submitted a joint response with the Investment Funds Institute of Canada under
separate cover which outlines why we think that consolidation is not appropriate for “investment
entities” - entities whose primary business purposes is to acquire investments for capital
appreciation, current income or both. In that letter, we outlined reasons why consolidation of
subsidiaries would not provide useful and relevant information for readers of investment entity
financial statements. In addition to the comments raised in the joint response, we would like to
make the following two points, which are particularly relevant to pension plans and those who
manage pension plan investments:
1. Reduced acceptance of IFRS – Since consolidation of investments makes no sense for
investment companies, institutional investors like bcIMC and Caisse de dépôt et
placement du Québec may be forced to adopt a disclosed basis of accounting to ensure
that readers of their financial statements receive meaningful and transparent financial
information. By adopting a rigid, one-size-fits-all consolidation standard, the IASB will
actually be pushing some organizations away from IFRS, which is counter to the
intended aim of a single worldwide standard.
2. Consistency and comparability
Canada and, it is our understanding, other jurisdictions that have adopted IFRS, has
created a double standard for pension plans. In Canada and some other jurisdictions,
pension plans will continue to apply accounting standards specific to pension plans
rather than IFRS. If the pension plan standards require fair value measurement of their
investments and IFRS requires consolidation, there will be a lack of comparability
between pension plans and institutional investors that manage investments for pension
plans. When pension plans manage their own investments and hold similar investments
to those managed for pension plans by institutional investors, there will be differences in
bottom lines and presentation that arise solely due to differences in the rules related to
consolidation, not actual performance.
The performance of investment entities (pension or otherwise) is often compared to their
peers. Returns are calculated based on the change in fair value of investment assets
under management. Where accounting standards result in different fair values for the
same investments simply because of the type of investment entity managing the
investment, the objective of enhancing comparability among different investment entities
will not be achieved. Different results for identical companies in the same sector will be
problematic for institutions and individual investors in assessing where to make their
investments.
We are already seeing a number of financial statements from European investment entities
prepared using a disclosed basis of accounting, or financial statements with opinions that state
the financial statements are in accordance with IFRS “except that they are not prepared on a
consolidated basis”. These developments are troublesome on two fronts: first, they are a clear
indication that IFRS may not meet the needs of certain financial statement preparers and
stakeholders; and second, they may lead to audit opinions with exceptions becoming routine
and therefore having less impact on reader s of financial statements. Neither of these
outcomes is desirable and both are clear indications that there are some fundamental problems
with the consolidation rules under IFRS, at least as far as the users of investment entity financial
statements are concerned.
Conclusion
The undersigned strongly recommend that the IASB amend the existing IFRS consolidation
requirements for investment entities to take into account the specific needs of the users of
financial statements. Amending the existing IFRS consolidation requirements for investment
entities would be consistent with the position taken for Investments in Associates and produce
much more meaningful financial statements.
We appreciate your consideration of these comments. If you have any questions about our
position or would like to discuss it further, please contact any of the undersigned.
Yours sincerely,
David Woodward
Vice President, Finance and Operations
Ghislain Parent
Executive Vice President, Finance and Operations