IFRS 9 Financial Instruments - Mutual Funds Investments FVOCI vs FVPL for Unrealized Gains

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MagicXmas
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Joined: 18 Jan 2021, 20:18

IFRS 9 Financial Instruments - Mutual Funds Investments FVOCI vs FVPL for Unrealized Gains

Post by MagicXmas »

Dear Team,

Happy to join your forum and happy for post for the first time!
I am deep diving into IFRS9 for our company balance sheet & FS..and I know some expert guidance.
The company invested into Mutual Funds (w underlying equity although one of the mutual fund has some bonds exposure).
On 31 Dec 2020, we still hold those assets and have no intention to sell them for many years.
The units invested in the mutual funds increased in value, but are just unrealized gains for now - as not yet sold.
We just collected a few income paid back to the company (dividends) and those were reinvested into the mutual funds.

We wonder how we should represent those assets in BS / FS.
From our multiple readings in PWC / KPMG documentations, we found that we should opt for FVOCI

https://www.pwc.com/gx/en/audit-service ... basics.pdf
See page 14 on Investments in equity instruments.
We understand that the dividend collected will be shown as income on our PL.
We wonder if we should show the unrealized gains in our PL as well.

However, page 14 in the pwc doc linked, there is also that following mentions that makes me puzzled related to IAS 32 includes special exceptions.
Referred to as “puttable instruments”, examples include mutual fund units, . they do not qualify as equity investments from the holder’s perspective under IFRS 9 and thus the option to classify and measure these assets at FVOCI is not available. ... measured at FVPL

So would that mean that investments made by the company into mutual funds units are considered as puttable instruments and NOT equity investments ?
And as such, FVOCI is not available for those, and we must use FVPL ?
If we must use FVPL for those investments then, how would you represent the UNrealized gains/losses in FS ?

Thanks for your lights and guidance!
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Marek Muc
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Re: IFRS 9 Financial Instruments - Mutual Funds Investments FVOCI vs FVPL for Unrealized Gains

Post by Marek Muc »

Hi, happy to have you here :)

This view seems to be confirmed directly in basis for conclusions to IFRS 9 (BC5.21) and by IFRIC:
https://cdn.ifrs.org/-/media/feature/ne ... y-2017.pdf

As I understand, there is some obligation by the fund to repurchase the units from you, right? What are the key terms re. timing and amount?

But it seems that all changes in fair value should go to P/L, even those unrealised.

BTW, are you aware that for an equity instrument classified as FVOCI, changes in fair value are never recycled to P/L, even if realised?
MagicXmas
Posts: 2
Joined: 18 Jan 2021, 20:18

Re: IFRS 9 Financial Instruments - Mutual Funds Investments FVOCI vs FVPL for Unrealized Gains

Post by MagicXmas »

Thank you Marek for your reply ! much appreciated :)
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