There have been several changes that impact preparers and users of fund financial statements during 2022. These changes include the introduction of CCIV, the impact of uncertain times and the new Australian financial reporting framework which includes the release of the updated FS70 for AFSL licensees.

Introducing the Corporate Collective Investment Vehicle ("CCIV")

The Corporate Collective Investment Vehicle Framework and Other Measures Act 2022, “the Act”, which came into effect on 1 July 2022, introduces a new type of collective investment vehicle in the form of a company. Investors pool their funds in an investment company, a CCIV, which is managed by a professional funds manage.

A CCIV must have at least one sub-fund with at least one member at all times and is governed by a Constitution. A sub-fund is not a separate legal entity but essentially operates (for both tax and legal purposes) as if it is a separate investment vehicle with a separate investment strategy and investors.  

A CCIV must be operated by a corporate director (“CD”) that is required to be a public company that holds an Australian financial services licence in a similar manner to how a Responsible Entity is required to operate a registered MIS.

Retail CCIVs are required to prepare audited annual and half-year financial and directors report for each of their sub funds and have similar compliance plan obligations to registered managed investments schemes.

Reflecting the impact of uncertain times

Market disruptions associated with current geopolitical events and COVID-19 conditions and restrictions have had a global impact, and uncertainty exists as to their implications. Such disruptions can directly and indirectly adversely affect assets and performance of Funds.

A Fund is required to reflect the volatility in global and local capital markets resulting from the coronavirus (COVID-19) pandemic and global risks in the valuation of its investment portfolio and its financial results. The fair value of investments should reflect:

  • information available and market conditions at the measurement date;
  • valulation techniques that maximise the use of relevant observable inputs and minimises the use of unobservable inputs;
  • up-to-date cash flow projections and the necessary risk premiums.

In addition, there are also specific disclosures that should be considered, where relevant, in relation to impact of uncertainty, including:

  • consideration of whether uncertainty relating to valuation of investments in jurisdictions impacted by global events results in a loss of market observable inputs and a transfer of investments from Level 1 or Level 2 in the fair value hierarchy to Level 3.
  • providing additional disclosure on how reviews of portfolios are undertaken to identify investments that potentially may not be actively traded or have stale security pricing. This process identifies securities which possibly could be regarded as being level 3 securities.
  • disclosures about the key assumptions, sensitivities and major sources of estimation uncertainty.
For more information on the implication of uncertainty, refer to KPMG’s Financial reporting in uncertain times resource centre.

Illustrative fund financial statements and Australian specific reminders

KPMG publishes annually its Illustrative disclosures for investment funds (PDF 2.2MB). The guide is intended to help funds prepare and present financial statements in accordance with IFRS® Accounting Standards.

As the guide is focused on IFRS Accounting Standards rather than Australian specific requirements, a MIS should consider in addition the disclosures under the new Australian Financial Reporting Framework applicable for 30 June 2022. As registered schemes should already be preparing Tier 1 general purpose financial statements (GPFS), the main impact of the changes would be for unregistered funds/wholesale funds where they previously prepared special purpose financial statements (SPFS).

A registered MIS should consider the requirements of the Corporations Act 2001 in relation to preparation of a directors’ report and directors’ declaration, and the requirements of AASB 1054 Australian Additional Disclosures in relation to the basis of preparation, audit fees, and reconciliation of net operating cash flow to profits.

The illustrative examples, together with the explanatory notes, are not intended to be seen as a complete and exhaustive summary of all disclosure requirements that are applicable under lFRS Accounting Standards to a MIS. In addition, users should consider any changes in requirements from when the guide was published. For or an overview of the latest changes to standard that are applicable under IFRS Accounting Standards and Australian Accounting Standards, please refer to the KPMG’s Standards on Issue.

Changes to AFSL financial reporting framework

In early June 2022, ASIC issued a media release announcing the regulators requirements for Australian Financial Services (AFS) licensees in implementing the new Australian financial reporting framework.

The impact of the changes are discussed in detail in our Reporting Update 22RU-13 AFSL Financial Reporting Changes. ASIC has since released its updated Form FS 70 to reflect these changes which is available on the ASIC website.

The requirements in the FS 70 are consistent with the changes discussed in our reporting update, however we note based on the current wording, if an AFS licensees is an intermediate parent then it will no longer be able to use the exemption in AASB 10 Consolidated Financial Statements (paragraph 4(a) or Aus4.1) to not present consolidated financial statements (this is a change from prior practice).  

We understand that removing the ability of AFS licensees to utilise the AASB 10 consolidation exemption (i.e., not to present consolidated financial statements if an intermediate parent qualifies under all the conditions for the exemption) was not intended by ASIC. We understand that ASIC is working to make a change to permit intermediate parents to apply the consolidation exemption, where it qualifies to do so.

Until ASIC advises further, AFS licensees who are intermediate parents will not be able to apply the consolidation exemption. We understand ASIC should make a further announcement before the end of July 2022.

Michael Voogt
Director, Department of Professional Practice


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