Potential impacts to Pharma and Life Sciences companies of the new accounting definition of an "investment company"

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04/10/2014 by Pharmaceuticals & life science
Potential impacts to Pharma and Life Sciences companies of the new accounting definition of an

At a glance

This Pharmaceutical and Life Sciences Alert focuses on the key accounting considerations when assessing whether an entity is an investment company under the new accounting definition and provides illustrative examples.

Pharmaceutical, biotech, medical device and other life sciences companies often invest through entities that are considered “investment funds.” Before ASU 2013-08, the definition of an investment company was broader under Topic 946 whereby more entities may have met that definition. The new ASU provides a revised definition of an investment company which may result in some investment funds no longer meeting the definition of an investment company. If the entity does not meet the definition of an investment company, then the company is at risk of consolidating the operating activities of the investment fund’s investee or accounting for them under the equity method of accounting. This Alert focuses on the key accounting considerations when assessing whether an entity is an investment company. The Alert also provides illustrative examples.