Are VNAV MMFs monetary items?

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DJP
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Are VNAV MMFs monetary items?

Post by DJP »

Hello everyone,

I was wondering if I could have your views on whether you consider variable net asset value Money Market Funds to be monetary items or not. I appreciate that this may not have a big impact on financial reporting since these instruments are accounted for at FVPL, but still I am curious about how you would apply the requirements of IAS 21 paragraph 16 to these instruments.

Thanks!
Leo
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Re: Are VNAV MMFs monetary items?

Post by Leo »

I would say it's a non-monetary items in FC carried at fair value - use the exchange rate at the date when fair value was determined ?
DJP
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Re: Are VNAV MMFs monetary items?

Post by DJP »

But why a non-monetary item? :)

(most of these investments are classified as cash equivalents)
Leo
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Re: Are VNAV MMFs monetary items?

Post by Leo »

Ah, sorry DJP, I've never dealt with those instruments before.

My analysis is only based on the definition I've read about the VNAV and I thought that because it's variable, and there isn't right to receive a fixed / determinable amount of currency units ?

I'm wondering are derivatives and mutual funds monetary items or non monetary ones ?
DJP
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Re: Are VNAV MMFs monetary items?

Post by DJP »

So that's the thing.

Derivatives are monetary items. As for mutual funds, I came across a PwC publication where they say that redeemable participating shares are not, given that "the unit has no stated or predetermined maturity and represents a residual interest in the net assets of an entity".

However, stated or predetermined maturity is not a condition under IAS 21. The conditions are 1) right receive 2) fixed or determined units of currency. Regarding mutual funds (and especially MMFs) there is no question that the holder has "the right to receive" because the instruments are puttable, and I could argue that the value is also determinable (after all the fund managers disclose the NAV on a daily basis).
Leo
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Re: Are VNAV MMFs monetary items?

Post by Leo »

From my understanding, maybe it's because IAS39 and IFRS9 say that investments in equity instruments are non-monetary items :

https://ifrscommunity.com/knowledge-bas ... tary-items

And share that does not specify any mandatory redemption by the issuer at some future date would represent an equity instrument :

https://www.cpdbox.com/monetary-non-monetary/

Hence, redeemable participating shares are not, if there is not specified date of redemption ?

But here, for the the monetary fund, I've changed my opinion now based on what you wrote :

1):
When you put it back to the issuer, you'll receive an amount of cash. Isn't this a right to receive ?

2):
Now I understand it's determinable, in fact as you said, it's calculated on a daily basis.

I do think it's a monetary item now. Although the price isn't fixed but it's determinable.

What do you think ?
DJP
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Re: Are VNAV MMFs monetary items?

Post by DJP »

I think exactly the same. Especially because it would be weird to have an investment presented as a cash equivalent that was not a monetary item.

But even considering all other types of mutual funds... these instruments are usually financial liabilities for the issuer because they are puttable (even though in exceptional cases they are classified as equity). The issuer has an obligation to pay, and therefore the holder has a right to receive. So, the first condition of IAS 21 para 16 is met. And again, the NAV of the fund is determinable. Doesn't this make it a monetary item too then? :geek:
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Marek Muc
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Re: Are VNAV MMFs monetary items?

Post by Marek Muc »

DJP wrote: 10 May 2022, 16:44 Especially because it would be weird to have an investment presented as a cash equivalent that was not a monetary item.
spot on, I think that an asset that satisfies the definition of cash equivalent in IAS 7 must be a monetary asset
DJP wrote: 10 May 2022, 10:34 I appreciate that this may not have a big impact on financial reporting since these instruments are accounted for at FVPL
I mean, absolutely no impact (apart from disclosures maybe), right?
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Re: Are VNAV MMFs monetary items?

Post by DJP »

Correct.

There could be, however, a difference in terms of P/L geography. The standards are silent about this, but an entity could choose to present all FX gains or losses on monetary items separately from the remaining fair value gains or losses from financial instruments accounted for at FVPL. So, for example, if you had a foreign currency debt financial asset designated at FVPL you could present the FV gains and losses calculated based on the original currency in one line of the income statement, and the FX revaluation part in another line. I've never seen this in practice though...
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Re: Are VNAV MMFs monetary items?

Post by Marek Muc »

I think that IFRS 9 mentions somewhere that you don't 'bifurcate' fx movements for assets carried at fair value but I can't find it right now, I'll try to revisit this tomorrow
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Re: Are VNAV MMFs monetary items?

Post by Marek Muc »

I was thinking about paras B5.7.2A and B5.7.3 but they are not conclusive really for assets at FVTPL so I guess you're right, i.e. it is possible to show the foreign exchange impact separately from the impact of the price component
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Re: Are VNAV MMFs monetary items?

Post by DJP »

Thanks for checking!
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Marek Muc
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Re: Are VNAV MMFs monetary items?

Post by Marek Muc »

Ps. What about this agenda decision:

https://www.ifrs.org/news-and-events/up ... ch-2018/#7

That could apply to fx gains or losses too
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