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Update no. 123 includes updates on Investment
Entities (amendments to HKFRS 10 Consolidat-
ed Financial Statements, HKFRS 12 Disclosure
of Interests in Other Entities and HKAS 27 (2011)
Separate Financial Statements).
The Investment Entities amendments
apply to a particular class of business that
qualifies as an “investment entity.” This term
refers 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 organizations, venture capital
organizations, pension funds, sovereign
wealth funds and other investment funds.
Under HKFRS 10, reporting entities were
required to consolidate all investees that
they control (i.e. all subsidiaries). Preparers
and users of financial statements have sug-
gested that consolidating the subsidiaries of
investment entities does not result in useful
information for investors. Rather, reporting
all investments, including investments in
subsidiaries, at fair value provides the most
useful and relevant information.
In response to this, the amendments
provide an exception to the consolidation
requirements in HKFRS 10 and require
investment entities to measure particular
subsidiaries at fair value through profit or
loss, rather than consolidate them. The
amendments also set out disclosure require-
ments for investment entities.
The amendments are effective from 1
January 2014 with early adoption permitted
in order to allow investment entities to apply
the amendments at the same time they first
apply the rest of HKFRS 10.
Update no. 124 contains improvement
changes to HKSIR 400 and HKSAs.
In June 2012, the IAASB published the
2012 edition of the Handbook of International
Quality Control, Auditing, Review, Other
Assurance, and Related Services Pronounce-
ments and made editorial and formatting
changes in finalizing it. Changes have been
made to the corresponding Hong Kong
HKSRE 2400 (revised) conforms with
ISRE 2400 (revised) issued by the IAASB in
September 2012. HKSRE 2400 (revised) aims
to enhance the quality and consistency of
engagements to review historical financial
statements, through revised requirements
and guidance addressing the responsibilities,
work effort and reporting considerations of
practitioners undertaking such engagements.
HKSRE 2400 (revised) is effective for reviews
of financial statements for periods ending on
or after 31 December.
HKSIR 400 is revised to reflect the
improvement changes made to paragraph
56 and the illustrative examples. There is no
change to the principles in the standard. The
revisions made are effective upon issuance.
IASB exposure draft: Classification and
Measurement: Limited Amendments to
The Institute has issued an invitation to com-
ment on the IASB exposure draft Classifica-
tion and Measurement: Limited Amendments
to IFRS 9, with comments requested by 28
February. The proposals form part of a wider
project to reform accounting for financial
instruments and are part of the classification
and measurement phase of that project.
The IASB published new classification
and measurement requirements for financial
assets in 2009 and for financial liabilities
in 2010. However, in January 2012 the IASB
decided to consider limited amendments in
order to: clarify a narrow range of application
questions; reduce key differences with the
United States Financial Accounting Standards
Board’s tentative classification and measure-
ment model to achieve increased compa-
rability internationally in the accounting for
financial instruments; and take into account
the interaction between the classification
and measurement of financial assets and the
accounting for insurance contract liabilities.
In publishing the exposure draft, the IASB
sought to minimize changes to the require-
ments in IFRS 9 Financial Instruments and
ensure the proposed amendments are consis-
tent with the business model-driven classifi-
cation structure in IFRS 9. The draft proposes
the introduction of a “fair value through
other comprehensive income” measurement
category for debt instruments that would be
based on an entity’s business model.
IASB exposure draft: Clarification of Ac-
ceptable Methods of Depreciation and
The Institute is seeking comment on the IASB
exposure draft Clarification of Acceptable
Methods of Depreciation and Amortization
(proposed amendments to IAS 16 and IAS
38), with comments requested by 1 March.
IAS 16 Property, Plant and Equipment and
IAS 38 Intangible Assets both establish the
principle for the basis of depreciation and
amortization as being the expected pattern
of consumption of the future economic
benefits of an asset.
The objective of the proposed amend-
ments is to ensure that preparers do not
use revenue-based methods to calculate
charges for the depreciation or amortization
of items of property, plant and equipment
or intangible assets. This is because a
revenue-based method reflects a pattern
of economic benefits being generated from
the asset, rather than the expected pattern
of consumption of the future economic
benefits embodied in the asset.
The latest standards and
48 February 2013
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