For fiscal years beginning on or after January 1, 2014,
Investment Funds must adopt International Financial Reporting
Standards (IFRS) for their interim and annual financial statements.
This adoption may result in significant changes to an Investment
Fund's financial statement presentation, classification and
disclosure. It is very important that fund managers are aware of
these changes and take the necessary steps to consult with their
professional advisors to ensure a smooth transition. Here is a
brief summary of some of the changes that can arise on
Fair value of investments
Investments Funds will need to select appropriate accounting
policies for the measurement of their investments. Under IFRS 13
– Fair Value Measurement, investments are to be accounted for
based on the point within the bid/ask spread that most represents
their fair value in their principal market. Depending on the
accounting policy chosen, this can result in the need for
reconciliations between net assets and net asset value. For
investments that are subject to restrictions on resale, management
will need to consider whether or not the restrictions arise as a
result of the instrument itself and the impact on fair value, if
Classification and presentation of puttable shares or
Investment Funds typically issue units that are redeemable at
the option of the holder for cash. Under previous Canadian GAAP
these units were, under most circumstances, accounted for as
equity. However, in accordance with IAS 32 – Financial
Instruments: Presentation, these fund units will now likely meet
the definition of a financial liability since they contain an
obligation of the fund to deliver cash to the holder. Some
circumstances do exist where the fund units may still meet the
requirements for equity disclosure. A detailed analysis will be
necessary to make this determination.
Consolidation for Investment Funds
Amendments to IFRS 10 – Consolidated Financial Statements
have allowed for most Investment Funds to continue accounting for
their subsidiary investments at fair value, and not on a
consolidated basis. Under this standard, management must first
determine if the fund controls an investment and should consider:
(i) whether the fund has power over the investee, (ii) whether it
has exposure or right to variable returns from its involvement with
the investee and (iii) whether it has the ability to use power over
the investee to affect the amount of the investors' returns. If
control is established, management will then have to determine if
the Investment Fund is an "investment entity". An
"investment entity" obtains funds from one or more
investors so that it is able to provide investment management
services, has a business purpose of investing funds solely for
returns from investment income and/or capital appreciation, and
measures and evaluates the performance of substantially all of its
investments on a fair value basis. If the Investment Fund qualifies
under these guidelines, it will not consolidate its subsidiary
investments but account for them at fair value.
Presentation of statement of financial position
Upon the first year of transition to IFRS, Investment Funds must
disclose the Statement of Financial Position as at three dates
– current year end, prior year end and transition date
(usually the first day of the prior year). In addition, Investment
Funds will now be required to present a Statement of Cash Flows.
This was not obligatory under previous Canadian GAAP.
In this first year of transition it will also be necessary to
incorporate certain retroactive restatements that stem from the
accounting changes described above. Both the prior year and
transition date Statements of Financial Position and the prior year
Statements of Earnings, Retained Earnings and Cash Flows may all
These are only some of the changes resulting from the transition
to IFRS. Investment fund managers should consult with their
professional advisor should they have questions regarding the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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