Illustrative FRS 102 Financial Statements 2015
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Transcript of Illustrative FRS 102 Financial Statements 2015
Investment fundsIllustrative FRS 102 fi nancial statements31 December 2015
www.moorestephens.co.uk PREC ISE . PROVEN . PERFORMANCE .
Illustrative financial statements
i
Introduction
The City of London spearheads the UK’s access to worldwide markets and the availability of
associated, world-class, financial services, which makes the UK an attractive centre for
investments and investment funds. As with all jurisdictions though, there are challenges
associated with adopting the local financial reporting requirements and ensuring that the
financial information presented is both compliant and engaging.
This is currently an even greater challenge in the UK as a result of the switch, as of
1 January 2015 for all but small entities, to Financial Reporting Standard 102 (FRS 102)
which replaces the previous requirements of ‘old’ UK GAAP.
As such, we have developed the following illustrative financial statements for UK investment
funds preparing their financial statements under FRS 102 in order to complement our
previous offerings covering IFRS, IFRS for SMEs and US GAAP.
In order to ensure that these illustrative financial statements remain fully compliant and
up-to-date, we will review and revise them on an annual basis to incorporate
changes made to UK GAAP (FRS 102) by the Financial Reporting Council. As part of our
review we will also consider any developments in best practice, evolving our accounts
presentation accordingly.
Having advised international investment funds for many years, our professional teams at
Moore Stephens understand not only the content required by the differing accounting
regimes, but also how best to present it. In the future we intend to combine all four sets of
illustrative financial statements in a single document, providing a handy point of reference
for anyone preparing investment fund accounts in line with IFRS, IFRS for SMEs, US or
UK GAAP.
If you would like to discuss any aspects of our approach in presenting these illustrative
accounts, please get in touch. We would be delighted to receive any feedback you have
to offer.
FRS 102 Investment Funds
ii
Europe
London
Geoff Woodhouse – [email protected]
Lorraine Bay – [email protected]
Tim West – [email protected]
Monaco
Andrew Gallagher – [email protected]
Patricia Osborne – [email protected]
Geneva
Jacques Grossen – [email protected]
Dublin
Andy Quinn – [email protected]
Cormac Reilly – [email protected]
Jersey
Phillip Callow – Partner [email protected]
Nicholas Solt – [email protected]
Luxembourg
Anna Skornik – [email protected]
Holger Stölben – [email protected]
Our team
Americas
Grand Cayman
Karl Jordan – [email protected]
New York
Barry Goodman – [email protected]
San Francisco
Matt Armanino – [email protected]
Chicago
Timothy J. Quinn – [email protected]
Far East
China
Liang Chun – [email protected]
Zhou Long – [email protected]
Singapore
Mei Leng Lao – [email protected]
Mick Aw – [email protected]
Middle East
Dubai
John Adcock – [email protected]
Kuwait
Idris Atcha – [email protected]
Muscat
Prasad Inna – [email protected]
Illustrative financial statements
iii
Contents
MS FRS 102 Investment Fund Ltd ....................................................................... 1Strategic report ..................................................................................................................................................................................2
Directors’ report .................................................................................................................................................................................3
Statement of comprehensive income .................................................................................................................................................6
Statement of financial position ...........................................................................................................................................................7
Statement of changes in equity ...........................................................................................................................................................8
Statement of cash flows .....................................................................................................................................................................9
Notes to the financial statements ......................................................................................................................................................10
1. General information ................................................................................................................................................................10
2. Basis of preparation ................................................................................................................................................................10
3. Summary of significant accounting policies .............................................................................................................................10
3.1 Foreign currency translation ............................................................................................................................................10
3.2 Revenue recognition .......................................................................................................................................................10
3.3 Financial assets and financial liabilities at fair value through profit or loss ........................................................................11
4. Critical accounting estimates and judgments ...........................................................................................................................11
5. Financial risk management .....................................................................................................................................................12
5.1 Fair value ........................................................................................................................................................................12
5.2 Nature and extent of risks arising from financial instruments ...........................................................................................13
5.3 Market risk .....................................................................................................................................................................14
5.4 Credit risk .......................................................................................................................................................................16
5.5 Liquidity risk ....................................................................................................................................................................17
5.6 Capital risk management ................................................................................................................................................18
6. Revenue ..................................................................................................................................................................................19
7. Auditors’ remuneration ...........................................................................................................................................................19
8. Taxation ..................................................................................................................................................................................19
9. Investments ............................................................................................................................................................................20
9.1 Financial assets at fair value through profit or loss ...........................................................................................................20
9.2 Financial liabilities at fair value through profit or loss .......................................................................................................20
10. Trade Receivables ..................................................................................................................................................................21
11. Accruals and other payables ..................................................................................................................................................21
12. Redeemable shares ...............................................................................................................................................................21
12.1 Issued and fully paid up redeemable shares ..................................................................................................................21
13. Related parties ......................................................................................................................................................................21
13.1 Investment manager .....................................................................................................................................................22
13.2 Administrative Agent ....................................................................................................................................................22
13.3 Custodian .....................................................................................................................................................................22
13.4 Directors .......................................................................................................................................................................22
14. Events after the end of the reporting period ..........................................................................................................................22
15. Ultimate controlling party .....................................................................................................................................................22
16. Approval of financial statements ...........................................................................................................................................22
Appendix I – Transition to FRS 102 ....................................................................................................................................................23
About Moore Stephens .................................................................................... 27
FRS 102 Investment Funds
iv
Contents (continued)
Illustrative financial statements
1
MS FRS 102 Investment Fund Ltd
Model FRS 102 Investment Fund Financial Statements31 December 2015
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
2 Strategic report
Reference:SI2013/1970CA06s414C
Strategic report1
(Registered number: #######))
CA06s414C(2)(a)
CA06s414C(2)(b)
CA06s414C(3)
CA06s414C(4)
CA06s414C(12)
1. Business review2
A fair review of the company’s business.
A description of the principal risks and uncertainties facing the company.
The review must include a balanced and comprehensive analysis, consistent with the size and complexity of the
business, of:
(a) the development and performance of the company’s business during the financial year; and
(b) the position of the company at the end of that year.
To the extent necessary for an understanding of the development, performance or position of the company’s
business:
(a) analysis using financial key performance indicators; and
(b) where appropriate, analysis using other key performance indicators, including information relating to
environmental matter and employee matters
Where appropriate, the review must include references to, and explanations of, amounts included in the
company’s annual accounts.
CA06s414D(1)2. Approval of the strategic report The strategic report must be approved by the board of directors and signed on behalf of the board by a director
or the secretary (if any) of the company.
1 The strategic and directors’ reports have not been prepared specifically for MS FRS 102 Investment Fund Limited; instead an outline of the disclosures required by the company has been provided.
2 Although it is no longer a requirement to disclose the principal activities, it would be unclear if the strategic report did not explain what these activities were.
Illustrative financial statements
3Directors’ report
Reference: Directors’ report(Registered number: #######))
CA06s416(1)(a)
SI 2008/410
Sch. 7.7.1(b)
SI 2008/410
Sch. 7.7.1(a)
CA06s416(3)
SI 2008/410
Sch. 7.7.1(c)
SI 2008/410
Sch. 7.6
1. General information – directorsThe names of the persons who, at any time during the financial year, were directors of the company.
2. General information – activitiesAn indication of likely future developments in the business of the company.
3. Events since the end of the financial yearParticulars of any important events affecting the company which have occurred since the end of the financial
year.
4. DividendsThe amount (if any) that the directors recommend should be paid by way of dividend.
5. Research and developmentAn indication of the activities of the company in the field of research and development.
6. Financial instrumentsUnless not material for the assessment of the assets, liabilities, financial position and profit or loss of the
company, an indication of:
(a) the financial risk management objectives and policies of the company;
(b) the policy for each major type of forecasted transaction for which hedge accounting is used;
(c) the exposure of the company to:
(i) price risk;
(ii) credit risk;
(iii) liquidity risk;
(iv) cash flow risk.
SI 2008/4100
Sch. 7.3
SI 2008/410
Sch. 7.3
SI 2008/410
Sch. 7.3
SI 2008/410
Sch. 7.4
SI 2008/410
Sch. 7.7.1(d)
7. Political donations and expenditureThe name of each EU political party, other EU political organisation or EU independent election candidate to
whom any donation has been made.
The amounts given to each EU political party, other EU political organisation or EU independent election
candidate to whom any donation has been made.
The amount of any other EU political expenditure incurred by the company in the year.
None of the disclosures above is required where the total of all political donations and expenditure in the EU is
£2,000 or less.
A statement of the amount of contributions made by the company in the year to non-EU political parties.
8. BranchesAn indication of the existence of branches of the company outside the United Kingdom.
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
4 Director’s report
Reference:
SI 2008/410
Sch. 7.9
9. Acquisition of own shares3 Where shares in the company are purchased or acquired by the company, or on its behalf, or are subject to a lien
or charge by the company, then:
(a) the number of shares purchased;
(b) the nominal value of the shares purchased;
(c) the consideration paid by the company;
(d) the reasons for the purchase;
(e) the number of shares otherwise acquired or charged by the company;
(f) the nominal value of shares otherwise acquired or charged by the company;
(g) the maximum number of shares held or charged by or for the company during the financial year;
(h) the maximum nominal value of shares held or charged by or for the company during the financial year;
(i) the number of shares previously purchased, otherwise acquired or charged by the company that have been
disposed of or cancelled by the company during the year;
(j) the nominal value of shares previously purchased, otherwise acquired or charged by the company that have
been disposed of or cancelled by the company during the year;
(k) where shares previously purchased, otherwise acquired or charged by the company have been disposed of
by or on behalf of the company during the year for money or money’s worth, then the amount or value of
the consideration in each case;
(l) in respect of each category above, the percentage of the called up share capital which those share
represent;
(m) where shares have been charged, the amount of the charge.
SI 2008/410
Sch. 7.10
10. Disabled personsThe following disclosures apply only where the average number of persons employed by the company (and
working wholly or mainly in the United Kingdom) in each week during the financial year exceeded 250.
The policy that has been applied in the year for giving full and fair consideration to applications for employment
made by disabled persons, having regard to their particular aptitudes and abilities.
The policy that has been applied in the year for continuing the employment of, and arranging appropriate
training for, employees who have become disabled during their period of employment.
The policy that has been applied in the year otherwise for the training, career development and promotion of
disabled persons.
SI 2008/410
Sch. 7.11
11. Employee involvementThe following disclosures apply only where the average number of persons employed by the company (and
working wholly or mainly in the United Kingdom) in each week during the financial year exceeded 250.
A statement describing the actions that have been taken during the financial year to introduce, maintain or
develop arrangements aimed at:
(a) providing employees systematically with information on matters of concern to them as employees;
(b) consulting employees or their representatives on a regular basis so that the views of employees can be
taken into account in making decisions which are likely to affect their interests;
3 The disclosures in relation to the acquisition of the company’s own shares are required only for public companies.
Illustrative financial statements
5Directors’ report
Reference: (c) encouraging the involvement of employees in the company’s performance through an employees’ share
scheme or by some other means;
(d) achieving a common awareness on the part of all employees of the financial and economic factors affecting
the performance of the company.
CA06s418(2)
CA06s419(1)
12. Statement as to disclosure to auditorsA statement to the effect that, in the case of each of the persons who are directors at the time the report is
approved:
(a) so far as the director is aware, there is no relevant audit information of which the company’s auditor is
unaware;
(b) he has taken all the steps that he ought to have taken as a director in order to make himself aware of any
relevant audit information and to establish that the company’s auditor is aware of that information.
13. Statement of directors’ responsibilitiesA description of the responsibilities of those charged with governance (the directors) for the financial
statements.
14. Approval of the directors’ reportThe directors’ report must be approved by the board of directors and signed on behalf of the board by a director
or the secretary (if any) of the company.
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
6 Statement of comprehensive income
Reference:3.23(a-e)3.17(b)(i)3.195.2(a)SI 2008/410 Sch.1
Statement of comprehensive income4,5 (Stated in US Dollars, unless otherwise indicated)
Note 2015 2014
5.5(a)5.9
Revenue 6
11.48(a)23.30(b)(iii)
Interest income 3.2 24,116,758 16,282,936
11.48(a)23.30(b)(v)
Dividend income 3.2 3,568,529 5,972,401
30.25(a)23.30(b)(viii)
Net foreign currency gain/(loss)6 97,367 223,171
11.48(a)12.823.30(b)(viii)
Net gain/(loss) from financial assets and liabilities at fair value through profit or loss
41,042,674 21,369,001
Total net income/(loss) 68,825,328 43,847,509
5.11(a) Expenses
Management fees (6,712,779) (3,432,865)
Custodian fees (134,256) (68,657)
Administration fees (895,037) (457,715)
Directors’ fees (30,635) (25,058)
Performance fees (8,325,686) (5,613,990)
Legal and professional fees (256,662) (104,061)
Other expenses (77,818) (77,648)
Total operating expenses (16,432,873) (9,779,994)
Profit or loss before tax 52,392,455 34,067,515
29.19 Taxation 8 (5,099,792) (833,077)
3.19 Profit or loss 47,292,663 33,234,438
4 FRS 102 (3.17(b); 5.2) gives a choice of presenting all items of income and expense recognised in a period either (1) in a single statement of comprehensive income, or (2) in two statements comprising (a) a separate income statement, which displays components of profit or loss, and (b) a statement of comprehensive income, which begins with profit or loss and displays components of other comprehensive income. MS FRS 102 Investment Fund Ltd. has elected to use the single statement approach.
5 The statement of comprehensive income format adopted in these financial statements is Format 1 per SI2008/410 Schedule 1. Any of the formats presented in schedules 1, 2 or 3 of the Statutory Instrument would be appropriate for FRS 102 financial statements provided that they are suitable for the business, however schedules 2 and 3 are unlikely to be relevant for investment funds.
6 The net foreign currency gains and losses presented do not include those arising on financial instruments measured at fair value through profit and loss in accordance with Section 30.25(a).
Illustrative financial statements
7Statement of financial position
Reference:3.17(a)3.23(a-e)4.2(a)SI 2008/410 Sch. 1
Statement of financial position7
(Stated in US Dollars, unless otherwise indicated)
Note 2015 2014
Assets
Current assets
11.41(a) Investments8 9 1,032,844,225 520,694,332
Trade receivables 10 72,460,629 85,581,244
Cash and cash equivalents 23,585,288 133,642,010
Total assets 1,128,890,142 739,917,586
Liabilities and equity
Current liabilities
Financial liabilities 9 528,463,437 425,587,845
Due to brokers 8,660,169 5,256,368
Accruals and other payables 11 4,642,271 1,160,367
Total liabilities 541,765,877 432,004,580
Net assets/(liabilities) 587,124,265 307,913,006
Capital and reserves
22.4 Share capital9 12 454,544,794 219,626,198
4.12(b) Profit and loss account 132,579,471 88,286,808
Total capital and reserves 587,124,265 307,913,006
7 The statement of comprehensive income format adopted in these financial statements is Format 1 per SI2008/410 Schedule 1. Any of the formats presented in schedules 1, 2 or 3 of the Statutory Instrument would be appropriate for FRS 102 financial statements provided that they are suitable for the business, however schedules 2 and 3 are unlikely to be relevant for investment funds.
8 Section 11.2 of FRS 102 allows entities a choice between applying the provisions of Sections 11 and 12 of FRS 102 in full, or applying the measurement provisions of IAS 39 and the disclosure requirements of Sections 11 and 12. In these financial statements the measurement criteria of IAS 39 have been applied on the basis that the Fund, for management purposes, will be regularly valued. Therefore, the classification of all financial instruments at fair value through profit or loss per IAS39.9(b)(ii) will be both more informative to the users and better aligned with the information available to management.
9 In accordance with section 22.4 of the FRS 102 redeemable shares, or units, where there is no subordinate class of shares will be classified as equity instruments as they represent the residual interest in the entity. Conversely, any subordinate shares, for instance management shares, would result in all redeemable shares being classified as debt.
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
8 Statement of changes in equity
Reference:3.17(c)3.23(a-e)6.3
Statement of changes in equity(Stated in US Dollars, unless otherwise indicated)
6.3Share capital
Profit and loss account
Total
6.3(c) As at 1 January 2014 94,750,000 55,052,370 149,802,370
6.3(c)(iii) Proceeds from redeemable shares issued 149,663,840 – 149,663,840
6.3(c)(iii) Redemption of redeemable shares (24,787,642) – (24,787,642)
6.3(a) Total comprehensive income – 33,234,438 33,234,438
6.3(c)(iii) Dividends – – –
6.3(c) As at 31 December 2014 / 1 January 2015 219,626,198 88,286,808 307,913,006
6.3(c)(iii) Proceeds from redeemable shares issued 282,594,433 – 282,594,433
6.3(c)(iii) Redemption of redeemable shares (47,675,837) – (47,675,837)
6.3(a) Total comprehensive income – 47,292,663 47,292,663
6.3(c)(iii) Dividends – (3,000,000) (3,000,000)
6.3(c) As at 31 December 2015 454,544,794 132,579,471 587,124,265
Illustrative financial statements
9Statement of cash flows
Reference:3.17(d)3.23(a-e)7.3
Statement of cash flows10,11,12 (Stated in US Dollars, unless otherwise indicated)
Note 2015 2014
7.4 Cash flows from operating activities
7.4(f) Purchase of financial assets and settlement of financial liabilities (512,149,893) (136,411,304)
7.4(f) Proceeds from sale of financial assets 136,598,068 109,067,510
7.4(f) Purchase and settlement of derivative financial instruments 19,830,008 22,658,943
7.4(f) Dividends received 2,736,059 4,830,698
7.4(f) Interest received 28,986,349 17,306,891
7.4(c) Operating expenses paid (12,950,969) (7,893,641)
Taxation paid (5,077,082) (798,125)
Net cash flow from operating activities (342,027,460) 8,760,972
7.6 Cash flows from financing activities
7.147.16
Distributions paid to holders of redeemable shares (3,000,000) –
7.6(a) Proceeds from issue of redeemable shares 282,594,433 149,663,840
7.6(b) Redemptions of redeemable shares (47,675,837) (24,787,642)
Net cash flow from financing activities 231,918,596 124,876,198
Net increase/(decrease) in cash and cash equivalents (110,108,864) 133,637,170
Cash and cash equivalents at 1 January 2015 133,642,010 6,636
Exchange gains/(losses) on cash and cash equivalents 52,142 (1,796)
Cash and cash equivalents at 31 December 2015 23,585,288 133,642,010
10 The statement of cash flows presented uses the direct method due to the nature of the operations. Many entities however used the indirect method which is also acceptable under Section 7.7(a) of FRS 102.
11 The statement of cash flows presented does not include the third standard heading, ‘Investing Activities’ on the basis that the investing carried out by the Fund forms part of its operations.
12 As financial institutions, under the definition given by FRS 102, investment funds may take advantage of paragraph 34.33 of FRS 102 which permits cash receipts and payments arising on the placement and withdrawal of deposits to be presented on a net basis provided that the deposits either had a fixed maturity date or were with other financial institutions.
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
10 Notes to the financial statements
Reference:3.17(e)3.23(a-e)8.2
Notes to the financial statements(Stated in US Dollars, unless otherwise indicated)
3.24(a)
3.24(b)
1. General informationMS FRS 102 Investment Fund Ltd is an open ended investment company which is incorporated, as a limited
liability company, and domiciled in the United Kingdom. The address of the legal representative and registered
office is 150 Financial Road, London.
The Company’s objective is to generate long-term absolute growth through diversified investment in long and
short positions in North American and European emerging market equities, as well as derivative instruments and
both company and sovereign debt.
8.2(a)
3.3
8.4(a)
SI 2008/410
Sch. 1.45
8.5(a)
2. Basis of preparationThese financial statements have been prepared in accordance with Financial Reporting Standard 102 as issued by
the Financial Reporting Council.
The financial statements have been prepared on the historical cost basis with the exception of financial instruments
at fair value through profit or loss which have been measured at fair value.
8.2(a)
8.4(b)
8.5(b)
30.2
3. Summary of significant accounting policies
3.1 Foreign currency translationThe Company has determined that the US$ is its functional currency, as this is the currency of the primary
economic environment in which the Company predominantly operates.
Transactions in currencies other than US$ are recorded at the rate of exchange prevailing on the date of the
transaction.
At each reporting date, monetary assets and liabilities denominated in currencies other than US$ are retranslated
at the rate of exchange prevailing at the reporting date. Non-monetary assets and liabilities carried at fair value
that are denominated in currencies other than US$ are also translated at the rate of exchange prevailing at the
reporting date.
Gains and losses arising on translation are included in profit or loss and are reported on a net basis.
8.5(b)
23.30(a)
3.2 Revenue recognition
3.2.1 Interest income and expense
Interest income and expense, including interest income from non-derivative financial assets at fair value through
profit or loss, are recognised in profit or loss, using the effective interest method.
3.2.2 Dividend income and expense
Dividend income is recognised in profit or loss on the date at which the right to receive payment is established.
Dividends payable to holders of redeemable shares are recognised as a liability and in the profit and loss account
when they have been authorised.
Illustrative financial statements
11Notes to the financial statements
Reference:
8.5(b)
3.3 Financial assets and financial liabilities at fair value through profit or loss3.3.1 Classification
All the investments in debt, equity and derivatives held by the Company are classified as financial assets or
liabilities at fair value through profit or loss.
8.5(a)
11.40
3.3.2 Recognition, derecognition and measurement
Regular purchases and sales of financial instruments are recognised on the trade date, being the date on which
the Company commits itself to the purchase or sale. Financial instruments at fair value through profit or loss are
initially recognised at fair value, when the Company becomes party to the contractual provisions of the
instrument, with their associated transaction costs being charged immediately, when incurred, to profit or loss.
Subsequent to the initial recognition, financial assets and liabilities at fair value through profit and loss are
measured at fair value with the resultant gains and losses being taken to profit or loss.
Financial assets are derecognised when the contractual rights to the cash flows from the asset expire, or when
the Company has transferred substantially all the risks and rewards of ownership.
11.43
SI 2008/410
Sch.1.32(3)
3.3.3 Fair value
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The fair value of assets and liabilities traded in an active market is based on quoted market prices at the close of
trading on the reporting date. For quoted financial assets the valuation is based on the closing bid price; for
quoted liabilities the closing asking price is applied.
Where financial instruments are not traded in an active market, the fair value is determined using valuation
techniques. The valuation techniques used are dependent on the level of data, the circumstances and the
availability of observable inputs for each such financial instrument but may include comparable recent arm’s
length transactions, discounted cash flow analysis and option pricing models.
3.3.4 Net gain or loss from financial assets and liabilities at fair value through profit or loss
Net gains or losses from financial instruments at fair value through profit or loss includes all realised and
unrealised fair value changes but does not include interest and dividend income.
8.6
8.7
4. Critical accounting estimates and judgmentsIn preparing the financial statements, the investment managers have exercised judgement over the inputs used
in the determination of fair value of equities not quoted in an active market.
The valuation of these equity securities inevitably involves estimation uncertainty as there is no active market to
determine the fair value of the funds or their underlying investments.
The availability of valuation techniques and observable inputs can vary from security to security and is affected
by a wide variety of factors including, the type of security, whether the security is new and not yet established in
the marketplace, and other characteristics particular to the transaction.
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
12 Notes to the financial statements
Reference:
11.27
5. Financial risk management 5.1 Fair valueThe following table provides an analysis of the position of assets and liabilities, classified at fair value through
profit or loss following their initial recognition, within the fair value hierarchy.
The fair value hierarchy13 groups assets and liabilities measured at fair value according to the extent to which the
inputs used to determine the fair values are observable:
• Level 1: Inputs derived from quoted prices (unadjusted) in active markets, that the entity can access at the
measurement date, for identical assets or liabilities;
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e. prices) or indirectly (i.e. derived from prices);
• Level 3: Inputs which are not observable from market data and which are derived from valuation techniques.
The fair value hierarchy level is determined based on the lowest level input that is significant to the valuation.14
34.20
34.22
5.1.1 Classification of fair value assets and liabilities
2015 Level 1 Level 2 Level 3 Total
Assets
• Equity securities
– Eurozone
- Transport 124,123,552 – – 124,123,552
- Energy 95,193,019 – – 95,193,019
- Telecoms 62,061,776 – – 62,061,776
– United States
- Transport 51,268,424 – – 51,268,424
- Energy 262,621,213 – 8,472,019 271,093,232
- Healthcare 115,435,206 – 5,648,012 121,083,218
- Financial 74,520,120 – – 74,520,120
• Derivatives
– Traded options 25,698,458 – – 25,698,458
• Debt securities
– Eurozone sovereign 27,645,262 49,420,112 – 77,065,374
– Treasury bills – 130,737,052 – 130,737,052
Total assets at fair value through profit or loss
838,567,030 180,157,164 14,120,031 1,032,844,225
13 Under FRS 102 11.27 the fair value hierarchy is not as described above, is not in line with that included within IFRS and applies specifically to the valuation of non-puttable ordinary shares and non-convertible preference shares. However, in November 2015 Financial Reporting Exposure Draft 62 was issued for comments (the period for which closed on 31 January 2016) with the intention of aligning the FRS 102 hierarchy with IFRS. This amendment was ultimately made on 8 March 2016 and will be mandatory from 1 January 2017 with early adoption permitted. These financial statements have taken advantage of the permissible early adoption, however, you should consult with your audit engagement team before completing you draft financial statements.
14 In addition to classification within the fair value hierarchy section 34.20 of FRS 102 requires the assets and liabilities to be classified on the basis of their characteristics. What constitutes a ‘characteristic’ is not defined by FRS 102, however it seems likely that the intention was for the disclosures to be in line with those required under IFRS. Accordingly ‘characteristics’ have been taken to be, for the purposes of these financial statements, those things that market participants would take in to account when pricing the asset, including the condition and location of the asset and any restrictions on the use or sale of the asset.
Illustrative financial statements
13Notes to the financial statements
Reference: 2015 Level 1 Level 2 Level 3 Total
Liabilities
• Equity securities sold short
– United States
- Energy 169,337,640 – – 169,337,640
- Transport 112,891,760 – – 112,891,760
• Other derivatives
– Traded options 246,234,037 – – 246,234,037
Total liabilities at fair value through profit or loss
528,463,437 – – 528,463,437
2014 Level 1 Level 2 Level 3 Total
Assets
• Equity securities
– United States
- Energy 359,224,416 – 14,783,554 374,007,970
- Financial 14,794,488 - 14,794,488
• Derivatives
– Traded options 61,598,139 – – 61,598,139
• Debt securities
– Eurozone sovereign 9,381,871 33,262,995 – 42,644,866
– Treasury bills 8,435,248 19,213,621 - 27,648,869
Total assets at fair value through profit or loss
453,434,162 52,476,616 14,783,554 520,694,332
2014 Level 1 Level 2 Level 3 Total
Liabilities
• Equity securities sold short
– United States
- Energy – 347,765,497 – 347,765,497
• Other derivatives
– Traded options 77,822,348 – – 77,822,348
Total liabilities at fair value through profit or loss
77,822,348 347,765,497 – 425,587,845
34.23 5.2 Nature and extent of risks arising from financial instrumentsThe Company has exposure to the following risks from its use of financial instruments:
• Market risk
– price risk
– currency risk
– interest rate risk
• Liquidity risk
• Credit risk
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
14 Notes to the financial statements
Reference: The board of directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework. The board has established a finance committee which is responsible for developing
and monitoring the Company’s risk management strategy and policies. The committee reports regularly to the
board of directors on its activities. There have been no changes to the Company’s exposures to risk or the
methods used to measure and manage these risks during the year.
The Company’s audit committee overseas how management monitors compliance with the Company’s risk
management policies and procedures and reviews the adequacy of the risk management framework regarding
the risks faced by the Company.
The Company’s financial investments which are measured at fair value consist mainly of long equity, corporate
bonds, derivatives and bank deposits. The Company holds derivative instruments for the purposes of
speculation.
34.29 5.3 Market risk5.3.1 Price risk
The Company invests in financial instruments, taking positions on listed and unlisted investments, in order to
take advantage of movements in the equity and fixed income markets. The Company may also purchase traded
options to buy or sell shares.
All securities investments present a risk of loss of capital. The investment managers moderate this risk through
diversification of the investment portfolio. Except for derivative contracts, the maximum risk resulting from
financial instruments is determined by the fair value of the financial instruments. Possible losses from derivatives
contracts can be greater.
It is the Company’s investment policy to limit investment in any given industry or debt sector to 25% of the net
assets attributable to redeemable shareholders and to limit the investment in any individual security to 3% of
these net assets
The Company’s overall market positions are monitored on a daily basis by the investment managers.
At 31 December 2015 had equity prices increased by 10%, with all other variables held constant, there would
have been an increase in the net assets attributable to the redeemable shareholders of US$10,047,278 (2014:
US$3,564,879). Had equity prices fallen 10% there would have been a corresponding decrease in net assets of
US$10,002,395 (2014: US$559,016).
Variances of 10% are used when reporting price risk to the Company’s key management personnel and
represent management’s assessment of the reasonably possible change in equity prices.15
15 Please note that the use of symmetrical upside and downside variances for sensitivity purposes are not required by FRS 102. If management felt, for instance, that based on market data the reasonably possible changes were +10% and -5% reporting on this basis would be acceptable.
Illustrative financial statements
15Notes to the financial statements
Reference: 5.3.2 Currency risk
The Company holds monetary and non-monetary assets in currencies other than its functional currency, the US
Dollar. The value of monetary assets denominated in foreign currencies will fluctuate due to changes in foreign
exchange rates. The investment manager monitors the exposure to currency risk on a daily basis and the risk
exposure is monitored by the Board of Directors on a quarterly basis.
At 31 December 2015, monetary assets and liabilities were denominated in the following currencies16:
Cash Accounts
ReceivableAccounts
PayableTotal
2015 (USD)
US Dollars 12,500,202 23,732,686 8,660,169 44,893,057
Euros 8,254,851 8,283,750 - 16,538,601
Pounds Sterling 2,830,235 40,444,193 4,642,271 47,916,699
23,585,288 72,460,629 13,302,440 109,348,357
2014 (USD)
US Dollars 92,212,976 58,578,970 5,256,368 156,048,314
Euros 34,746,933 6,480,546 - 41,227,479
Pounds Sterling 6,682,101 20,521,728 1,160,367 28,364,196
133,642,010 85,581,244 6,416,735 225,639,989
At 31 December 2015, had the exchange rates between the US Dollar and the Euro and the US Dollar and the
Pound Sterling increased or decreased by 3% (2013: 4%), with all other variables held constant, the respective
increase or decrease in net assets attributable to the holders of redeemable shares would amount to
US$17,110,194 (2014: US$15,894,124). 3% represents management’s best estimate of the reasonable possible
shift in foreign exchange rates.
5.3.3 Interest rate risk
Interest rate risk arises where the fair value or future cash flows of a financial instrument will fluctuate due to
changes in market interest rates. The Company is exposed to interest rate risk through its investments in debt
securities, associated derivative instruments and its interest bearing current and deposit accounts.
The overall exposure to interest rate risk is monitored on a daily basis by the investment manager and is
reviewed on a quarterly basis by the Board of Directors.
16 Debt instruments held for trading as part of the fund are not considered to be monetary assets as they are not held for the redemption and interest cash flows. The Fund does not hold currency or interest swaps, however it should be noted that these would be included as monetary items were they held.
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
16 Notes to the financial statements
Reference: The table below summarises the Company’s exposure to interest rate risk at 31 December 2015:
Less than 3 months
3 months to 1 year
More than 1 year
Total
Assets
Non-interest bearing 953,261,398 – – 953,261,398
Floating rate listed debt – 8,704,300 – 8,704,300
Fixed rate listed debt 34,781,832 12,689,100 92,106,321 139,577,253
Traded bond index options – 3,761,903 – 3,761,903
Cash and bank balances 23,585,288 – – 23,585,288
Total assets 1,011,628,518 25,155,303 92,106,321 1,128,890,142
Liabilities
Non-interest bearing 541,765,877 – – 541,765,877
Net assets attributable to holders of redeemable shares
587,124,265 – – 587,124,265
Total liabilities 1,128,890,142 – – 1,128,890,142
At 31 December 2015, had interest rates on floating rate instruments increased or decreased by 50 basis points
(2014: 50), with all other variables held constant, the respective decrease or increase in net assets attributable to
the holders of redeemable shares would amount to US$161,448 (2014: US$201,354). The impact on the value
of the fixed rate debt held by the Company of a 50 basis point increase or decrease would be US$44,400 (2014:
US$56,100), US$48,900 (2014: US$42,000) and US$701,450 (2014: US$514,900) respectively for the debt
maturing within three months, three months to one year and more than one year. 50 basis points represents
management’s best estimate of the reasonable possible shift in interest rates.
34.25
34.25(a)
34.25(d)
5.4 Credit riskCredit risk refers to the risk that a counterparty will be unable to pay amounts in full when they fall due,
resulting in a financial loss for the Company.
The Company is exposed to credit risk through its investments in debt securities, derivatives and its deposits of
cash. In management’s opinion the carrying amounts of the financial assets represent the maximum exposure to
credit risk at the year end. None of the Company’s assets at the reporting date are considered to be past due or
impaired.
Credit risk is monitored by the investment manager on a daily basis and the Company’s exposure is reviewed by
the Board of Directors on a quarterly basis. The Company further manages credit risk through its policy of only
investing in debt securities with a minimum credit rating of BBB/Baa as designated by the well-known ratings
agency MSRatings Ltd.
The table below summarises the Company’s exposure to different credit qualities at the reporting date.
Rating 2015 2014
AAA/Aaa 73% 68%
AA/Aa 12% 18%
A/A 9% 12%
BBB/Baa 6% 2%
Total 100% 100%
Illustrative financial statements
17Notes to the financial statements
Reference:
34.25(d)
Credit risk in the Company’s dealings with brokers is managed principally by using only approved brokers.
Additionally, when purchasing securities, cash is delivered only once the securities have been received by the
broker and when selling securities the security is delivered only after the cash is received by the broker.
When transacting in cash or derivative financial instruments the credit risk is mitigated by dealing only with
counterparties which are either regulated entities or have high credit-ratings assigned by recognised ratings
agencies. Where an instrument is settled in a foreign currency or where the counterparty operates in a foreign
currency; clearing houses are used so that transactions may be settled on a delivery versus payment basis in
order to reduce the settlement risk on non-standard transactions.
The Company is exposed to credit risk with the Custodian. Should the Custodian become insolvent, the
operation of the Company may be subject to delay if the Company is unable to access its assets. This risk is
managed through the choice of a reputable custodian.
34.28 5.5 Liquidity riskLiquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities as they fall due.
The Company is exposed to liquidity risk by the daily settlement of margin calls on derivative instruments and
the redemption of its redeemable shares. These risks are managed by the Company’s policy of investing the
majority of the Company’s assets in active markets so that they may be readily converted to cash at, or near,
their fair value should the need to respond to market events arise.
34.28
Some of the Company’s assets are, however, invested in over-the-counter derivative instruments and inactive
equity markets and are thus less easily realisable in the short term. The Company manages this risk through
maintaining the option of short to medium term credit facilities. These facilities were not utilised during the year.
The liquidity risk exposure of the Company is monitored on a daily basis by the investment managers and is
reviewed on a quarterly basis by the Board of Directors.
The table below summaries the maturities of the Company’s non-derivative financial liabilities which were
outstanding at 31 December 2015, the amounts included represent the contractual undiscounted cash flows:
Less than 1 month
2015
Due to brokers 8,660,169
Accruals and other payables 4,642,271
13,302,440
2014
Due to brokers 5,256,368
Accruals and other payables 1,160,367
6,416,735
There were no non-derivative liabilities outstanding at 31 December 2015 with maturities in excess of one month.
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
18 Notes to the financial statements
Reference: The following table details the maturities of the Company’s derivative financial instruments which were, at the
reporting date, standing at a loss. The cash flow timings reported are on a contractual basis. All cash flows are
undiscounted.
Less than 7 days
7 days to 1 month
1-3 months Total
2015
• Gross settled derivatives
– DAX options
- Outflow 397,977,671 77,654,180 9,706,772 485,338,623
- Inflow (196,065,761) (38,256,734) (4,782,091) (239,104,586)
• Net settled derivatives
– NYSE short sold equity 220,138,932 42,334,410 19,756,058 282,229,400
422,050,842 81,731,856 24,680,739 528,463,437
2014
• Gross settled derivatives
– DAX options
- Outflow 137,258,281 17,762,836 6,459,213 161,480,330
- Inflow (71,109,285) (9,202,378) (3,346,319) (83,657,982)
• Net settled derivatives
– NYSE short sold equity 302,555,982 34,776,550 10,432,965 347,765,497
368,704,978 43,337,008 13,545,859 425,587,845
The liquidity risk in respect of the above items is managed principally through the investment of the Company’s
assets in assets which may be easily liquidated within 7 days. The table below illustrates the liquidity of the short
term assets held as at 31 December 2015.
Less than 7 days
7 days to 1 month
1-3 months Total
2015
Assets 748,605,103 252,907,130 10,116,285 1,011,628,518
2014
Assets 537,772,101 115,723,110 27,228,968 680,724,179
34.31 5.6 Capital risk managementThe capital structure of the Company consists of cash, bank balances and the proceeds from the issue of
redeemable shares.
The Company has no specific requirements in relation to the subscription or redemption of shares, however the
Investment Manager reviews the capital structure of the Company on a monthly basis to determine the risks
associated with the classes of capital employed. It is the Company’s policy to maintain the net debt of the
Company at below 1% of the net assets attributable to the holders of redeemable shares.
Illustrative financial statements
19Notes to the financial statements
Reference:
8.4(c)
SI 2008/410
Sch. 1.68(2)
6. RevenueAll revenues of the company arise from the investments held. The investments are in equities, debt securities and
derivative instruments traded across Europe and the United States, however, all investment decisions and trading
by the company is undertaken in the United Kingdom. Accordingly, management considers revenue to have
wholly arisen to the United Kingdom.
8.4(c)
SI 2008/489s5 SI
2011/2198
7. Auditors’ remunerationThe following remuneration was received by the Company’s auditors and is included within Legal and
professional fees in the Statement of comprehensive income.
2015 2014
Remuneration receivable for auditing the accounts of the company 40,000 40,000
Remuneration receivable for taxation compliance services 10,000 8,000
Total 50,000 48,000
8.4(c)
SI 2008/410
Sch 1.67(2)
29.26(a)
26.19
29.27(d)
29.19
8. Taxation
2015 2014
Current tax:
Current tax expense 4,079,834 624,808
Withholding taxes 1,019,958 208,269
Total current tax 5,099,792 833,077
UK income tax is calculated at 20% (2014: 21%) of the estimated assessable profit for the year.
Withholding taxes imposed by other jurisdictions on investment income and capital gains are incurred by the
Company. The income and gains subject to these taxes are presented gross of the withholding tax with the tax
incurred presented as part of the taxation charge.
The charge for the year can be reconciled to the profit per the income statement as follows:
29.27(b)
29.27(a)
2015 2014
Income tax:
Profit before tax 52,392,455 34,067,515
Tax at the UK income tax rate of 20% (2014: 21%) 10,478,491 7,154,178
Tax effect of expenses not deductible in determining taxable profit (6,398,657) (6,529,370)
Tax expense – effective tax rate for the year 4,079,834 624,808
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
20 Notes to the financial statements
Reference:
8.4(c)
11.41(a)
SI 2008/410
Sch. 1.55(2)(b)
SI 2008/410
Sch. 1.34(3)
SI 2008/410
Sch. 1.58(3)
9. Investments9.1 Financial assets at fair value through profit or loss
2015 2014
Equity securities 799,343,341 388,802,458
Derivatives 25,698,458 61,598,139
Government bonds 207,802,426 70,293,735
Total 1,032,844,225 520,694,332
Net gain/(loss) from financial assets at fair value recognised in profit or loss
42,273,372 21,632,490
The carrying amount that would have been recognised had the financial assets at fair value through profit or loss been carried under the historic cost model would have been:
Cost 985,570,622 480,061,754
Impairment (3,298,847) (1,548,316)
Net book value 982,271,775 478,513,438
11.41(d)
SI 2008/410
Sch. 1.55(2)(b)
9.2 Financial liabilities at fair value through profit or loss
2015 2014
Equity securities sold short 282,229,400 347,765,497
Derivatives 246,234,037 77,822,348
Total 528,463,437 425,587,845
Net gain/(loss) from financial liabilities at fair value recognised in profit or loss
(1,230,698) (263,489)
11.43
11.46
Of the total investment assets, the fair value of US$773,198,503 (2014: US$453,434,162) were determined
based on the quoted market price. Of the remainder the fair value of assets measured at US$245,525,691
(2014: US$52,476,616) have been determined by quoted market prices adjusted for illiquidity using available
market data and assets valued at US$14,120,031 (2014: US$14,783,554) have been valued using a discounted
cash flow model on the basis of a weighted average cost of capital of 10% which, in the directors’ opinion, is
reflective of the returns required on any third party financing.
The derivative financial assets held by the Company are all traded options which have been valued based on
their quoted market price.
Investment assets of US$282,229,400 (2014: US$347,765,497) have been pledged as collateral against short
sold securities and derivative instruments standing at a loss. The agreement with the custodian, MSCUST Ltd
provides a lien to them over the assets of the Company up to 115% (2014: 115%) of the liability position
generated by the investment positions standing at a loss.
The financial liabilities held by the Company consist of equity securities sold short and traded options. The fair
values of equity securities sold short totalling US$282,229,400 (2014: US$347,765,497) were derived from the
contract value and the quoted price of the underlying securities. The fair values of the traded options were
determined based on their quoted market prices.
Illustrative financial statements
21Notes to the financial statements
Reference:
8.4(c)10. Trade Receivables
2015 2014
Amounts due from brokers 23,732,686 58,578,970
Other receivables 48,406,289 26,432,451
Amounts due from related parties 321,654 569,823
72,460,629 85,581,244
8.4(c)
SI 2008/410
Sch. 1
11. Accruals and other payables
2015 2014
Accruals 1,359,842 864,156
Other payables 3,225,067 261,259
Taxation payable 57,362 34,952
Amounts due to related parties - -
4,642,271 1,160,367
4.12
8.4(c)
4.12(a)(ii)
4.12(a)(iv)
12. Redeemable shares12.1 Issued and fully paid up redeemable shares
Shares issued and fully paid: Class A Class B Total
At 1 January 2014 189,000,000 500,000 189,500,000
Redeemable shares issued 299,327,680 – 299,327,680
Redeemable shares redeemed (49,575,284) – (49,575,284)
As at 31 December 2014 438,752,396 500,000 439,252,396
Redeemable shares issued 565,188,866 – 565,188,866
Redeemable shares redeemed (95,351,674) – (95,351,674)
As at 31 December 2015 908,589,588 500,000 909,089,588
4.12(a)(iii)
4.12(a)(v)
The redeemable shares have a par value of US$0.5 per share. The redeemable shares are issued as Class A and
Class B shares which carry equal voting rights and are entitled to the same dividends and share of the net assets
attributable to the holders of redeemable shares.
The redeemable shares are subject to minimum holding and subscription levels and are redeemable at the option
of the shareholder in accordance with the articles of association of the Company.
33.9
8.4(c)13. Related partiesMSIM (the ‘Investment Manager’); MSADMIN (the ‘Administrative Agent’); MSCUST (the ‘Custodian’), who are
fellow subsidiaries, and the Directors are considered by management to be the related parties of the company
due to direct or indirect control.
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
22 Notes to the financial statements
Reference: The related party transactions undertaken during the year and the outstanding balances at the reporting date
are summarised below:
8.4(c) 13.1 Investment managerThe Company appointed MSIM Ltd, an investment management company incorporated in MS Island to
implement the investment strategies set out in the prospectus. Under the investment management agreement,
the investment manager receives an annual management fee of 1.5% of the net assets attributable to the Class
A redeemable shares calculated on a daily basis.
Investment management fees of US$6,712,779 (2014: US$3,432,865) were paid during the year. As at
31 December 2015 fees of US$321,654 (2014: US$569,823) were payable to the investment manager.
13.2 Administrative AgentThe Company appointed MSADMIN Ltd, a fund administration company incorporated in MS Island to provide
administration and accounting services. Under the administration agreement, the administrative agent receives
an annual administration fee of 0.2% of the net assets attributable to redeemable shareholders which is
calculated on a daily basis.
During the year administration fees of US$895,037 (2014: US$457,715) were paid to the administrative agent.
As at 31 December 2014 fees of US$nil (2014: US$52,643) were payable to MSADMIN.
13.3 CustodianThe Company appointed MSCUST Ltd, a custodian company incorporated in MS Island to provide custodian
services. Under the custodian agreement, the custodian receives an annual administration fee of 0.03% of the
net assets attributable to redeemable shareholders, which is calculated on a daily basis.
During the year custodian fees of US$134,256 (2014: US$68,657) were paid to the custodian. As at
31 December 2014 fees of US$nil (2014: US$nil) were payable to MSADMIN.
13.4 DirectorsRemuneration paid to the director’s during the year amounted to US$30,635 (2014: US$25,058) and consisted
solely of directors’ fees.
The directors additionally hold all the Class B redeemable shares (2014: 100%).
32.10 14. Events after the end of the reporting periodFollowing the end of the reporting period the investment manager was replaced by MSIM LLP, a company
incorporated in MSLand, as a result of a reorganisation in the wider group. In the opinion of the directors, this is
not considered to have any financial implications for the Company.
33.5 15. Ultimate controlling partyIn the opinion of the directors the immediate parent company and ultimate controlling party of the Company is
MS Holdings Ltd, a company resident, domiciled and incorporated in MS Island.
32.9 16. Approval of financial statementsThese financial statements were approved by the board of directors on 18 March 2016.
Illustrative financial statements
23Appendix 1
Appendix I – Transition to FRS 102
On transition to FRS 102 the following amendment will be required in the basis of preparation, along with the additional disclosures required
by Section 35 of FRS 102. In summary, Section 35 requires:
1) an explanation of how transition has affected the reported financial position and financial performance of the entity;
2) a description of the change to each accounting policy made as a result of FRS 102;
3) a reconciliation of equity, both at the date of transition (in these accounts 1 January 2014) and at the end of the latest reporting period
presented under the previous GAAP (in this case 31 December 2014), and
4) a reconciliation of profit and loss, again both at the date of transition and at the end of the latest reporting period presented.
Reference:
3.3
8.4(a)
2.1 Basis of preparationThese consolidated financial statements have been prepared in accordance with the Financial Reporting
Standard 102 issued by the Financial Reporting Council. They are presented in United States Dollars.
Before 2014 the consolidated financial statements were prepared in accordance with UK GAAP applicable prior
to the adoption of FRS 102, as issued by the Financial Reporting Council, and referred to below as ‘previous UK
GAAP’. The financial effects of the transition to FRS 102 are set out in note 3 below.
3. Transition to FRS 102These consolidated financial statements for the year ended 31 December 2015 are the company’s first financial
statements that comply with the FRS 102. The company’s date of transition to FRS 102 is 1 January 2014. The
company’s last financial statements prepared in accordance with previous UK GAAP were for the year ended
31 December 2014.
The transition to FRS 102 has resulted in a number of changes in the entity’s accounting policies compared to
those used when applying previous UK GAAP.
The following explanatory notes to the consolidated financial statements describe the differences between the
equity and profit or loss presented under the previous UK GAAP and the newly presented amounts under FRS
102 for the reporting period ended at 31 December 2014 (ie comparative information), as well as the equity
presented in the opening statement of financial position (ie at 1 January 2014). It also describes the changes in
accounting policies made on first-time adoption of FRS 102.
In the table below, equity determined in accordance with the FRS 102 is reconciled to equity determined
in accordance with previous UK GAAP at both 1 January 2014 (the date of transition to FRS 102) and
31 December 2015.
The nature and extent of the explanatory notes will depend heavily on the accounting policies previously adopted by the transitioning entity.
Given the significant number of possible changes on transition to this FRS, below have been noted only a selection of the most likely and
significant changes to accounting policies that may arise. In addition to this, example wording for a change in investment property
accounting policy, and the required reconciliation tables have been provided:
FRS 102 Investment Funds Financial statements for the year end 31 December 2015
24 Appendix 1
Possible significant changes to accounting policy1) The amortisation period of goodwill and other intangible assets (presumed period reduced from 20 years to 5 years).
2) Treatment of deferred tax (DT to be recognised on revalued assets and business combinations and can no longer be discounted).
3) Measurement of investment properties (may be at cost or fair value, with fair value movements taken to profit or loss and may include
property let to other group companies).
4) Recognition and measurement of financial instruments.
5) Lease incentives (measured over the lease period under FRS 102 rather than to the first market rent review).
6) Changes to the measurement of employee benefits, (for instance the treatment of group defined benefit pension plans may now be as a
defined contribution scheme as opposed to a defined benefit one).
7) The treatment of foreign currency transactions.
3.1 Investment properties (EXAMPLE)In accordance with previous UK GAAP a property, owned by the company and leased to a fellow subsidiary, was
not recognised as an investment property and has been held at cost and depreciated. In accordance with FRS
102 this property is an investment property and is measured at its fair value at each period end. Consequently, in
its opening statement of financial position at 1 January 2014 the entity reclassified the property value of
£##,000 from property, plant and equipment to investment properties and increased its carrying amount by
£###,000.
The positive fair value movement of £##,000 at the end of 2014 is recognised in profit or loss.
In accordance with previous UK GAAP an investment property owned by the company was revalued to its fair
value at each period end with the resulting movement being taken to the statement of recognised gains and
losses. In accordance with FRS 102 this movement is taken to profit or loss. Consequently in its opening
statement of financial position at 1 January 2014 the entity reclassified its revaluation reserve, reducing the
reserve by £###,000, in to the profit or loss reserve, increasing this reserve by £###,000. There was no
movement in the fair value of this investment property in the period to 2014.
Illustrative financial statements
25Appendix 1
Rec
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FRS 102 Investment Funds Financial statements for the year end 31 December 2015
26
Reconciliation of consolidated profit or loss for the year ended 31 December 2014:
NotePrevious
UK GAAP
Previous UK GAAP restated
Effect of transition
FRS 102
Revenue:
Interest income
Dividend income
Net foreign currency gain/(loss)17
Net gain/(loss) from financial assets and liabilities at fair value through profit or loss
Expenses:
Management fees
Custodian fees
Administration fees
Directors’ fees
Performance fees
Legal and professional fees
Other expenses
Total operating expenses
Profit or loss before tax
Withholding taxes
Profit or loss
Appendix 1
17 The net foreign currency gains and losses presented do not include those arising on financial instruments measured at fair value through profit and loss in accordance with Section 30.25(a).
Illustrative financial statements
27
About Moore Stephens
Moore StephensMoore Stephens International Limited is
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needs in the most effective and cost-
efficient way by retaining a high level of
expertise and providing a wide range of
services. A consistently high standard of
work is ensured by training, regular quality
control reviews and frequent contact and
meetings with clients.
The essence of the Moore Stephens
operation is to provide each client with full
partner contact through a client liaison
partner who will co-ordinate, control and
ensure the quality of services provided.
They are supported by partners and staff
appropriate to the specific tasks that we are
asked to undertake.
Investment fundsOur Funds Group is one of the fastest
growing and dynamic departments within
the London office of Moore Stephens. Our
clients come not only from funds that need
regulatory-focused expertise that smaller
non-specialist firms cannot provide, but also
from clients of the Big Four looking for a
partner-led, proactive and responsive service
and value for money.
At the heart of our success is a team with
niche expertise and knowledge, gained
from working closely with leading financial
businesses and key people within the
industry. Since we advise many regulated
clients, we understand that maintenance of
robust systems, compliance with regulations
and hitting deadlines are crucial to avoiding
costly fines. This knowledge is used to
ensure that our clients can spend their time
building their business rather than ensuring
that they comply with the numerous rules
and regulations.
We believe the information in this report to be correct at the time of going to press but we cannot accept any responsibility for any loss occasioned to any person acting or refraining from acting as a result of any item herein. The information contained in this report is the property of Moore Stephens LLP, and may not be reproduced in any format by anyone without prior written approval from Moore Stephens LLP. Printed and published by © Moore Stephens LLP, a member firm of Moore Stephens International Limited, a worldwide network of independent firms. MSIL and its member firms are legally distinct and separate entities. Moore Stephens LLP is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Authorised and regulated by the Financial Conduct Authority for investment business. DPS31146 March 2016
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