A spokesman for London-listed private equity firm 3i said it had agreed with its auditor Ernst & Young that applying the IAS 27 accounting standard to its portfolio companies in order to produce consolidated accounts was unnecessary. However, the spokesman added that the firm would be applying IAS 27 to the group as a whole.
In a Dow Jones report, 3i’s Patrick Dunne said: “We’ll adopt IAS at the group level, but we won’t consolidate the accounts of our portfolio investments.”
The standard became mandatory for listed companies at the start of this year and optional for non-listed firms.
IAS 27 forms part of the ‘Improvements to International Accounting Standards’ drawn up by the London-based International Accounting Standards Board (IASB). It stipulates that companies prepare consolidated accounts, meaning that financial information relating to a parent company and all its subsidiaries will have to be presented as if the group were one single entity.
The European Private Equity and Venture Capital Association (EVCA) has lobbied for an exemption for private equity firms on the basis that meshing together the accounts of private equity funds’ underlying portfolio companies into a homogenous entity would be misleading for investors in those funds. It argued that such accounting would fail to reflect that companies in a private equity portfolio of direct investments are typically at different stages of development.
However, as yet, no exemption has been won.
The IASB has come under pressure from two high-profile sources over the last week. First, the Institute of Chartered Accountants in England and Wales urged it to halt plans to roll out the standards to non-listed companies. Then a few days later, the Hundred Group of FTSE 100 finance directors complained that some of the new accounting rules made accounts more opaque and less useful.