Reporting of investments in subsidiaries that are not included in the prudential scope consolidation.

Answer · verbatim

The general provisions of Annex V (Part 1, section 4.1, paragraph 12) clearly state that the investments in subsidiaries, joint ventures and associates should not be included in any "accounting portfolio".

From this starting point, associates as well as subsidiaries and joint ventures which are not included in the prudential scope of consolidation should be included in {F 01.01, r260, c010}.

As stated in Article 18(5) of the Regulation (EU) No. 575/2013 (CRR), the competent authorities shall determine how these investments should be measured, being the equity method an option or a requirement and without it constituting the inclusion of the undertaking concerned in supervision on a consolidated basis.

If the equity method is followed for their measurement:

As stated in IAS 28.1, the investment is recognised at cost on initial recognition, and the carrying amount increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The carrying amount of investments accounted for using the equity method includes related goodwill according to ITS. Annex V. Part 2. paragraph 4.

In addition, IAS 28.10 states that: "...Distributions received from an investee reduce the carrying amount of the investment...". In order to be consistent with this provision, the instruction relating to the statement of profit or loss in Annex V (paragraph 28, Part 2 of the ITS) should be modified as following: "Dividend income from subsidiaries, associates and joint ventures which are outside the scope of consolidation shall be reported within "Share of the profit or (-) loss of investments in subsidiaries, joint ventures and associates"

and, according to IAS 28.10, the carrying amount of the investment shall be reduced for those accounted for under the equity method"

.