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The US GAAP and IFRS Accounting Standards definitions of an investment entity are substantially converged; however, differences do exist. Investment companies measure their investments at fair value, including any investments in which they have a controlling financial interest.
US GAAP
IFRS Accounting Standards
An investment company is an entity with the following fundamental characteristics:
  • It is an entity that does both of the following:
    • Obtains funds from one or more investors and provides the investor(s) with investment management services
    • Commits to its investor(s) that its business purpose and only substantive activities are investing the funds solely for returns from capital appreciation, investment income, or both
  • The entity 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 income

An investment company would also be expected to have all of the following typical characteristics:
  • It has more than one investment
  • It has more than one investor
  • It has investors that are not related parties of the parent and the investment manager
  • It has ownership interests in the form of equity or partnership interests
  • It manages substantially all of its investments on a fair value basis

An entity may still be considered an investment company if it does not exhibit one or more of the typical characteristics, depending on facts and circumstances.
  • All entities subject to the Investment Company Act of 1940 are investment companies.

Unlike IFRS Accounting Standards, under US GAAP a reporting entity that consolidates an investment company retains the investment company’s specialized accounting in the reporting entity’s consolidated financial statements (ASC 810-10-25-15).
The IFRS Accounting Standards definition of an investment entity is substantially converged with the US GAAP definition with the following exceptions:
  • The IFRS Accounting Standards definition requires an entity to measure and evaluate the performance of substantially all of its investments on a fair value basis
  • The IFRS Accounting Standards definition does not provide for entities that are subject to certain regulatory requirements (such as the Investment Company Act of 1940) to qualify as investment entities without meeting the stated criteria

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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