INVESTMENT COMPANY ACCORDING TO GAAP

Last week the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No 2013 – 08 – Amendments to the Scope, Measurement and Disclosure Requirements contained in Topic 946 – Financial Services – Investment Companies.

I know, blogs are typically meant to be more light in nature and not so technical; but, this blog is the non-typical, at least when I write. I cannot speak for my blogging partner, Tony.

Briefly, the FASB issues standards that are generally accepted in the US called (GAAP).  The International Accounting Standards Board (IASB) issues standards that are internationally accepted called (IFRS). Recently, the FASB has been working in conjunction with the IASB in order to make the standards they issue the same.  Usually the FASB has been the regulator that amends its standards to conform to IFRS.  Here is one instance where the FASB wins and the IASB will adopt some of these amendments.

Yay for good ole’ USA.

The main provisions of this amendment are clarification of the definition of an investment company, the requirement of an investment company to measure non-controlling ownership interests in other investment companies at fair value and to require additional disclosures for investment companies.

Under this new ASU 2013-08, an entity will be required to meet the following fundamental characteristics to be considered an investment company:

•Obtain funds from one or more investors and provide the investor(s) with investment management services.

•Commit to its investors that its business purpose and only substantive activities are investing for returns solely from capital appreciation, investment income or both.

•The entity and its affiliates do not obtain, or have the objective of obtaining, returns or benefits from an investee or its affiliates that are not attributable to ownership interests or that are other than capital appreciation or investment income.

After consideration of the fundamental characteristics, the following typical characteristics may be considered:

•Multiple investments

•Multiple investors

•Investors that are not related to the parent entity or the investment manager

•Ownership interests in the form of equity or partnership interests

•Fair value management of investments

I am in the process of writing a full article to more detail this new principle.

 

– Frank

 

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