Investment Companies: Disclosures about Investments in Another Investment Company
Last updated on November 7, 2013. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Updated sections are indicated with an asterisk *)
The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
The objective of this project is to require disclosures in an investment company’s financial statements that will provide transparency into the risks, returns, and expenses of an investee that is also an investment company.
See meeting minutes below.
The disclosures would be required for:
- Investments in unconsolidated investment companies.
- The first level of investments in another investment company, not to the second or third level of investments. However, the Board decided that the guidance would include language to discourage a reporting investment company from creating additional levels of investments to circumvent the proposed disclosures.
A reporting investment company would disclose the following about each investment in another investment company (that is, an investee fund) that has a carrying value that equals or exceeds 5 percent of reporting company’s net assets as of the date of its statement of financial position:
- The reporting investment company’s share of the dollar amounts of management fees and incentive fees associated with the investee fund. If the reporting investment company cannot obtain information about the dollar amount of its share of the fees, it would disclose instead the percentage amounts and computational basis for each such fee.
- The reporting investment company’s fair value of, and its share of income/loss from, its investment in an investee fund.
- For investments in which the reporting investment company owns more than 20 percent of an investee fund, the reporting investment company would disclose whether its ownership percentage is between 20 to 50 percent of the net assets of the investee fund or whether its ownership percentage is greater than 50 percent of the net assets of the investee fund.
Those disclosures would not apply to consolidated investment company subsidiaries.
In a master-feeder structure, a feeder fund would be required to attach the master fund’s financial statements along with its financial statements, which would satisfy the disclosure requirements. For structures that are not master-feeder structures, an investment company would be permitted to attach the investee fund’s financial statements along with its financial statements to satisfy the disclosure requirements.
Investments Held by an Investee Fund
All investments companies (regulated and nonregulated) would be required to disclose information about each investment owned by an investee fund that exceeds 5 percent of the reporting investment company’s net assets at the reporting date. The information disclosed about the investment would be the requirements in paragraph 946-210-50-9.
Applicability to Interim Periods
An investment company would provide the disclosures for any financial statements that include a schedule of investments (regardless of whether those financial statements are for an annual or interim period).
The disclosures would be applied prospectively and early adoption would be permitted.
The comment period end date would be the later of 90 days from the date of issuance of the Exposure Draft or May 15, 2014.
The Board directed the staff to draft a proposed Accounting Standards Update incorporating the decisions reached. Please refer to the Current Technical Plan for information about the expected release date of the exposure draft.
*Board/Other Public Meeting Dates
The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.
|*October 23, 2013||FASB Board Meeting —Decisions about scope, proposed disclosures, threshold, applicability to interim periods, and transition|
|March 13, 2013||FASB Board Meeting—Decisions about the next steps.|
|January 23, 2013||FASB Board Meeting—Decisions about the threshold and “as of” date for disclosures|
|August 29, 2012||FASB Board Meeting—Decisions about disclosures requirements|
In October 2011, the FASB issued proposed Accounting Standards Update, Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements (ED). The ED would have required an investment company to consolidate controlling financial interests in another investment company in a fund-of-funds structure. The Board reasoned that consolidation would provide transparency into underlying investments and obligations to which the parent investment company has economic exposure.
However, in response to the ED, many constituents stated that the Board’s concerns regarding transparency into the assets, liabilities, income, and expenses of a controlled investee fund could be addressed through expanded disclosures in the notes to the financial statements rather than through consolidation of the controlled investee fund. Constituents stated that information should be provided about investee funds that are significant to the reporting investment company and not just those that are controlled.
In light of the feedback on the ED, the Board tentatively decided in August 2012 to require certain disclosures about significant investments in investee funds. In order to assess the operationality of the potential disclosures, the staff conducted limited outreach with constituents. After considering the input from this outreach, the Board decided in October 2013 to require the disclosures described in the summary of decisions reached .
*Contact InformationBob Bhave
Postgraduate Technical Assistant