FASB Issues Standard Update on Investment Company Status
- The company obtains funds from investor(s) and provides the investor(s) with investment management services.
- The company commits to its investor(s) that its business purpose and only substantive activities are investing the funds for returns solely from capital appreciation, investment income, or both.
- The company or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment outcome.
- The company has multiple investments.
- The company has multiple investors.
- The company has investors that are not related to the parent or investment manager.
- The company's ownership interests are in the form of equity or partnership interests.
- The company manages substantially all of its investments on a fair-value basis.
"If a public or private company does not possess one or more of the typical characteristics, it must apply judgment and determine – considering all facts and circumstances – how its activities continue to be consistent, or are not consistent, with those of an investment company," Pappas said.
- The fact that the company is an investment company and is applying specialized guidance.
- Information about changes, if any, in a company's status as an investment company.
- Information about financial support provided or contractually required to be provided by an investment company to any of its investees.
"Investment companies have reported their investments at fair value for decades under US GAAP, and this standard does not change that basic principal," FASB Chairman Leslie Seidman said in a written statement. "However, over the years, different types of companies have engaged in investing activities, making the scope of that guidance less clear. This standard clarifies the characteristics of an investment company and provides comprehensive implementation guidance for companies that have those characteristics."