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This Bulletin provides an update on the activities of the CICA Investment Funds Standing Committee.

The CICA Investment Funds Standing Committee was set up to address accounting and financial reporting matters for Canadian investment funds, including first-time application of International Financial Reporting Standards (IFRS). The CICA Investment Funds Standing Committee is com-prised of industry practitioners, auditors, and regulators.

To date, the research and views of the CICA Investment Funds Standing Committee have been published in two research reports entitled Financial Reporting by Investment Funds and Assess-ing Risk and Controls of Investment Funds — Guidance for Directors, Auditors and Regulators, and two supplemental bulletins. These documents are available on the CICA website.

Activities UpdateThe CICA Investment Funds Standing Committee is working with various stakeholders in the

investment funds industry, including the Investment Funds Institute of Canada (IFIC) Accounting Advisory Working Group, to develop application guidance on:• IFRSs — first-time adoption of IFRSs by investment funds• National Instrument 81 - 106 — continuous disclosure requirements for investment funds.

Investment Funds Update

BulletIn 3 | DeCemBer 2012

This publication was originally published by The Canadian Institute of Chartered Accountants in 2012. It has been reissued by Chartered Professional Accountants of Canada.

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IFRSInvestment entities in Canada that are publicly accountable enterprises are required to adopt IFRSs for annual periods beginning on or after January 1, 2014. As a result, calendar year reporters need to prepare their comparative financial information on an IFRS basis as of January 1, 2013, the date of tran-sition to IFRSs.

The CICA Investment Funds Standing Committee is supporting the development of industry-specific IFRS application material to be delivered in the form of an “IFRS Toolkit”. The “IFRS Toolkit” is being prepared under the direction of the IFIC Accounting Advisory Working Group and will include guid-ance on several key IFRS application areas, including:

Financial Instruments: PresentationInvestment funds frequently issue shares or units with unique, entity-specific characteristics. As a result, a significant effort may be required in applying the IFRS guidance to contractual terms of these instru-ments to determine whether they should be classified as a liability or equity.

Financial Instruments: Recognition and MeasurementCanadian investment funds have historically applied Accounting Guideline-18, Investment Companies (“AcG-18”) which requires that investment funds meeting the definition of an investment company mea-sure their investments at fair value with changes in fair value recorded through profit or loss in the period in which they arise. IFRS does not contain guidance similar to AcG-18.

Under IFRS, an investment entity will need to determine the appropriate classifications for each type of financial instrument they hold. These classifications are important because they determine the sub-sequent measurement of the financial instrument (i.e., fair value or amortized cost).

In addition, investment funds may hold investments that contain unique features or contractual terms. Accounting for such investments can be complex.

The “IFRS Toolkit” will include application considerations as they relate to key financial instrument recognition and measurement issues for investment funds.

The “IFRS Toolkit” will include application considerations when determining the presentation of investment fund shares or units, including classification of “puttable” instruments.

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ConsolidationIFRS 10, Consolidated Financial Statements contains special accounting requirements for investment entities. In particular, IFRS 10 defines an investment entity and introduces an exception from consolidation.

The “IFRS Toolkit” will include application considerations when determining whether a particular investment fund qualifies as an “investment entity” under IFRS 10, including a discussion of the associated accounting implications arising from such a determination.

Presentation and DisclosureInvestment funds may encounter difficulties applying the presentation and disclosure requirements of various IFRSs.

The “IFRS Toolkit” will include application considerations that relate to key financial statement presentation and disclosure issues for investment funds.

The IFIC Accounting Advisory Working Group expects to publish the “IFRS Toolkit” in stages, com-mencing January 2013.

Refer to Appendix 1 for selected industry-specific resources available to assist investment funds in applying IFRSs.

NATIONAL INSTRUMENT 81 - 106The CICA Investment Funds Standing Committee is continuing to monitor the changes to National Instrument 81 - 106, Investment Funds Continuous Disclosure and provide feedback to securities regu-lators on key application and implementation issues.

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Appendix 1 — Selected IFRS Resources for Investment Funds

IFRS for Investment Funds (KPMG)The KPMG series of IFRS for Investment Funds publications addresses practical application issues that investment funds may encounter when applying IFRS. It discusses the key requirements and includes interpretative guidance and illustrative examples. The series considers accounting issues from currently effective IFRS as well as forthcoming requirements. Publications include:• IFRS for Investment Funds — Fair value measurement of financial assets and financial liabilities• IFRS for Investment Funds — Classification of financial assets and liabilities under IFRS 9• IFRS for Investment Funds — Liability vs. equity• IFRS for Investment Funds — Segment reporting• IFRS for Investment Funds — Presentation and measurement of financial assets carried at fair value.

Illustrative IFRS financial statements 2012 — Investment funds (PwC)This PwC publication is based on the requirements of IFRS standards and interpretations for the finan-cial year beginning on January 1, 2012, with early adoption in 2012 of IFRS 13, Fair Value Measurement, which is not effective until annual periods beginning on or after January 1, 2013.

IFRS Illustrative Financial Statements: Investment Funds (KPMG)The purpose of this KPMG publication is to assist in preparing the financial statements of an investment fund in accordance with IFRSs. It illustrates one possible format of financial statements for fund-specific entities based on a fictitious tax-exempt open-ended single-fund investment company.

Straight-away 97 — IASB amends IFRS 10 to provide an exception from consolidation for ‘investment entities’ (PwC)This PwC publication provides a high-level overview of the amendments to IFRS 10.

Amendments to IFRS 10, Consolidated Financial Statements mean that many funds and similar entities will be exempt from consolidating most of their subsidiaries. Instead, they will measure them at fair value through profit or loss. The amendments, published on October 31, 2012, give an exception to entities that meet an ‘investment entity’ definition and which display particular characteristics. Changes have also been made to IFRS 12, Disclosure of Interests in Other Entities to introduce disclosures that an investment entity needs to make. Straight-away 97 has the details.