๐ Overview
This standard addresses the specialized accounting treatment for investment companies. Investment companies measure their investment portfolios at fair value.
๐ฏ Scope
This standard applies to investment companies, which are entities that:
- Aim to invest in financial assets to generate returns through appreciation and/or investment income.
- Measure their investment portfolio at fair value.
- Provide investment management services to their clients.
โ๏ธ Key Principles
1. **Characteristics of an Investment Company**:
- Obtains funds from one or more investors.
- Commits to specific investment objectives.
- Measures and evaluates investment performance on a fair value basis.
2. **Measurement**:
- All investments are measured at fair value.
- Fair value changes are recognized in the income statement.
- Investments are not depreciated.
3. **Consolidation**:
- Investment companies do not consolidate subsidiaries that are also investment entities.
- Measure investments in subsidiaries at fair value.
4. **Presentation and Disclosure**:
- Net Asset Value (NAV) or fair value per share class is presented.
- Fair value measurement policies are disclosed.
๐ Measurement
**Initial Measurement:**
- Investments are measured at fair value.
- Transaction costs are expensed (not capitalized).
**Subsequent Measurement:**
- All investments are remeasured to fair value at each balance sheet date.
- Fair value gains and losses are recognized in the income statement.
**Investments in Subsidiaries:**
- If the subsidiary is also an investment entity, it is measured at fair value (not consolidated).
**Net Asset Value (NAV):**
- Calculated as (Assets - Liabilities) รท Number of outstanding shares.
- May be used as a practical expedient for fair value in some disclosures.
โ Recognition
Investments are recognized when purchased.
Fair value changes are recognized in the income statement in the period they occur.
Dividends and interest received are recognized as revenue.
Investments are derecognized when sold.
No depreciation is recognized for any investments (because they are measured at fair value).
๐ Presentation
**On the Balance Sheet:**
- Investments are shown at fair value.
- Net Asset Value (NAV) or fair value per share class is presented.
**On the Income Statement:**
- Fair value gains and losses (realized and unrealized).
- Dividend and interest income.
- Investment management expenses.
**Note Disclosures:**
- Fair value measurement policies.
- Fair value hierarchy of investments.
- Net Asset Value (NAV) per share class.
- Restrictions on redemption or transfer.
- Relationships with investors.
๐ Disclosure Requirements
Disclosures required:
- Fair value measurement policies for investments.
- Fair value hierarchy for each investment class (Level 1, 2, 3).
- Net Asset Value (NAV) per share class (if used as a practical expedient for fair value).
- Restrictions on investors' ability to redeem their investments.
- Any hedging arrangements or derivatives used.
- Fees and expenses charged to investors.
- Relationships with subsidiaries or associates.
- Dividend distribution policies.
๐ Related Standards
ASC 820 (Fair Value Measurement), ASC 946-10 (Overall Presentation), ASC 946-20 (Deposit Services)