Dataline: Investment companies – FASB modifies definition of an "investment company" (No. 2013-14)

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Dataline / In depth 06/25/2013 by Assurance services
Dataline: Investment companies – FASB modifies definition of an

At a glance

On June 7, 2013, the FASB issued amendments to ASC 946 that modify the definition of an investment company under US GAAP. This Dataline looks at the key aspects of the new guidance and shares our insights on applying it.

On June 7, the FASB issued ASU 2013-08, Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements. The final standard updates the criteria used in defining an investment company under US GAAP. It also sets forth certain measurement and disclosure requirements.

As part of their joint project on consolidation, the FASB and IASB agreed that they would look to develop a consistent approach for determining whether an entity is an investment company. They agreed on a principles-based approach to defining investment entities, but significant differences remain between the IASB’s final guidance and the FASB’s final standard.

The IASB issued its final standard in the form of amendments to existing IFRS standards on October 31, 2012, which focused primarily on creating a narrow exception for certain entities from the consolidation guidance.

An entity regulated under the Investment Company Act of 1940 is automatically an investment company under the new US GAAP definition. For all other entities, the FASB decided to apply a blended approach. That is, the definition includes certain aspects that are required to be present along with additional characteristics that allow for judgment.

The ASU is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013. Early application is prohibited.

This Dataline looks at the key aspects of the FASB’s new guidance and shares our insights on applying it.