IFRS/US GAAP/Luxembourg GAAP: A comparison for …

1 IFRS/US GAAP/Luxembourg gaap : a comparison for investment funds Investment Management 1. Brochure / report title goes here | Section title goes here Foreword 03. International updates 04. industry -specific guidance for investment funds 09. financial statement presentation and disclosure differences for investment funds 12. Selected accounting differences that impact investment funds 35. 02. IFRS/US GAAP/Luxembourg gaap : a comparison for investment funds Foreword We are pleased to present the 4th edition of this publication comparing the application of major generally accepted accounting principles ( gaap ) for investment funds IFRS/US . GAAP/Luxembourg gaap . This document highlights selected the drafting of this publication, Deloitte The investment management industry differences between the major sets of Audit and the authors will take no faces an ever-increasing demand for accounting standards (IFRS, US gaap and responsibility for any omissions or transparency by stakeholders.)

2 This is luxembourg gaap ) applied to investment inaccuracies. further amplified in times of crisis. As funds. Although there are other significant We hope that you find this comparison investment managers look for global investment fund jurisdictions, the helpful and encourage you to contact us for opportunities to enter global markets, accounting standards in those other areas further discussions or additional it is essential that any reporting to tend to allow or closely follow the tenets of information. their stakeholders on their strategies IFRS. and products, including through their financial statements, is clearly This summary does not attempt to capture understood, meets local all of the differences that exist or that may Best, requirements, and allows for be material to a particular fund's financial comparison between the many statements. Our focus is on differences investment products offered. that are often encountered in practice. Further, the significance of these Although the ambition to move toward a differences and others not included in set of globally accepted financial reporting this analysis will vary with respect to Justin Griffiths standards, which address the needs of individual entities, depending on such Partn er, Investment stakeholders and acknowledge the unique factors as the nature of the fund's nature of the fund accounting industry , operations, the asset class in which it remains an ideal, different accounting invests, and the accounting policy it has standards are still used for preparing the chosen.

3 As a result, reference to the financial statements of investment funds underlying accounting standards globally. is key in understanding the specific differences. Although Vincent Gouverneur great care has been given to Partner, Investment Management Leader 3. IFRS/US gaap / luxembourg gaap : a comparison for investment funds International updates We have created this briefing to provide an overview of the potential accounting differences that exist between International financial Reporting Standards ( IFRS ), generally accepted accounting principles in the United States ( US gaap ) and luxembourg generally accepted accounting principles ( LUX gaap ) when applied to investment funds. Before presenting our analysis of the While US gaap and IFRS are well- selected differences, we highlight below established and recognized sets of certain recent developments affecting accounting standards, LUX gaap for investment funds in the sets of accounting investment funds is derived from standards under consideration.

4 luxembourg laws and regulations, and is primarily shaped by the European Union (EU) Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and the Alternative Investment Fund Manager (AIFM) Directive. 4. IFRS/US GAAP/Luxembourg gaap : a comparison for investment funds IFRS. UPDATES. IFRS 16 & Covid-19-Related Rent (interbank offer rates [IBORs]), the IASB For hedges of a non-contractually Concessions considered the financial reporting specified benchmark component of implications of the uncertainties about interest rate risk, a company shall IFRS 16 Leases replaced the existing the future of existing interest rate apply the separately identifiable standard IAS 17 Leases becoming benchmarks and identified two groups of requirement only at the inception of effective for reporting periods beginning accounting issues that could have such hedging relationships; and on or after 1 January 2019. financial reporting implications. These Define the rules in relation to the are: relief granted under the temporary For lessors, the changes introduced by Phase 1: pre-replacement issues exemptions from applying specific IFRS 16 are not significant and, except in issues affecting financial reporting in hedge accounting requirements respect of subleases, a lessor is not the period before the replacement during the period of uncertainty required to make any adjustments on of an existing interest rate regarding reform.

5 Transition for leases in which it is a lessor. benchmark with an alternative rate;. and The amendments are also designed to For lessees, the picture is fundamentally Phase 2: replacement issues issues support the provision of useful financial different. All leases within the scope of that might affect financial reporting information during the period of IFRS 16 (except for short-term leases, , when an existing interest rate uncertainty. a lease term of 12 months or less, and benchmark is replaced with an leases of low-value assets) are required alternative rate. The IASB has issued the Interest Rate to be brought on-balance sheet by Benchmark Reform Phase 2. lessees, recognizing a right-of-use asset In respect of Phase 1, on 26 September amendment which amends IFRS 9. and the related lease liability at 2019 the IASB issued the Interest Rate financial Instruments, IAS 39 financial commencement of the lease, with Benchmark Reform (Amendments to Instruments: Recognition and subsequent accounting generally similar IFRS 9, IAS 39 and IFRS 7), applicable Measurement, IFRS 7 financial to the finance lease model under IAS 17.

6 From 1 January 2020 (early adoption Instruments: Disclosures, IFRS 4. permitted), which amends some of the Insurance Contracts, and IFRS 16 Leases. Following the Covid-19 pandemic, the existing IFRS requirements for hedge The amendment addresses the following IASB published an amendment entitled accounting. areas: Covid-19- Related Rent Concessions, Practical expedient for particular which permits lessees, as a practical The amendments apply solely to hedge changes to contractual cash flows;. expedient, not to assess whether accounting requirements that are based Relief from specific hedge particular rent concessions occurring as on forward-looking analysis and are as accounting requirements;. a direct consequence of the Covid-19 follows: Disclosure requirements; and pandemic are lease modifications and Assume that the interest rate Transition and effective date. instead to account for those rent benchmark on which hedged cash concessions as if they are not lease flows are based is not altered as a This amendment has not yet been modifications.

7 The amendment does not result of the reform in the probability endorsed by the EU at the date of affect lessors. This amendment is assessment of a forecast transaction; publication of this report. effective for reporting periods beginning Assume that the interest rate on or after 1 June 2020 with earlier benchmark on which the hedged application permitted and was endorsed item, hedged risk and/or hedging by the European Union (EU) in October instrument are based is not altered 2020. as a result of the interest rate benchmark reform in making the prospective assessment under IFRS 9/IAS 39 IBOR Reform and its hedge accounting;. effect on financial reporting Grant relief from the IAS 39 (80- 125%) retrospective assessment for Following the financial Stability Board's hedging relationships directly report setting out recommendations to impacted by the reform on certain reform some major benchmarks conditions;. 5. IFRS/US GAAP/Luxembourg gaap : a comparison for investment funds Exposure Draft: Primary financial Statements In December 2019, the IASB published an Exposure Draft setting out proposals for a draft IFRS Standard on presentation and disclosures in financial statements that, if finalized, will replace IAS 1 Presentation of financial Statements.

8 The proposals require: Additional subtotals in the statement of profit or loss for transparency, consistency and comparability. The disaggregation of: operating expenses either by nature or by function in the statement of profit or loss; large other balances; and information regarding unusual income and expenses and additional minimum line items in the statement of financial position. Disclosure of some management- defined performance measures . that is, performance measures not specified by IFRS Standards with reconciliations between these and subtotals specified by IFRS. Standards. Limited changes to the statement of cash flows. 6. IFRS/US GAAP/Luxembourg gaap : a comparison for investment funds US gaap . UPDATES. Modified disclosure requirements In August 2018, the FASB issued (continued): ASU 2018-03, which removes, modifies, and adds disclosure For investments in certain entities requirements on fair value that calculate net asset value measurements in Topic 820, Fair (NAV), a requirement to disclose Value Measurements.

9 The the timing of liquidation of an purpose is to improve the investee's assets and the date effectiveness of these disclosure when restrictions from requirements. redemption might lapse only if the investee has communicated the The amendments to the fair value timing to the entity or announced measurement disclosure requirements the timing publicly. include those listed below. The applicability of the changes to a particular entity may Eliminated disclosure requirements: depend on whether it is considered a non- Amount of and reasons for transfers public entity. between Level 1 and Level 2;. Valuation processes for Level 3 fair New disclosure requirements: value measurements;. Changes in unrealized gains or losses Policy for timing of transfers between included in other comprehensive levels of the fair value hierarchy; and income (OCI) for recurring Level 3 fair Changes in unrealized gains and value measurements held at the end of losses for the period included in the reporting period; and earnings for recurring Level 3 fair Range and weighted average used to value measurements held at the end develop significant unobservable inputs of the reporting period.

10 For Level 3 fair value measurements. This ASU is effective for all entities for fiscal The aforementioned new disclosure years beginning after 15 December 2019, requirements are not applicable to including interim periods therein. non-public entities. Further US gaap updates impacting the Modified disclosure requirements: investment management industry can be Transfers into and out of Level 3 and found in the 2018 edition of our annual purchases and issues of Level 3 assets update highlighting selected accounting and and liabilities, disclosed in lieu of reporting developments, at the link below: reconciling the opening balances to the closing balances of recurring Level 3 fair ncial-services/articles/us-investment- value measurements; management-accounting-and- financial - Clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date; and 7. IFRS/US GAAP/Luxembourg gaap : a comparison for investment funds UPDATES WITH IMPLICATIONS.