Financial Reporting by Investment Funds - Second Edition

Financial Statement Disclosures and Specific Mattersexample, start-up operations may be operating segmentsbefore earning revenues.Generally, interpretation of this definition has led to theconclusion that investment funds do not have operatingsegments (and therefore do not have reportable segments)since a sub-group of portfolio investments is notdetermined to be an operating segment that engages inbusiness activities from which revenues may be earnedand expenses incurred.IFRS 8, paragraph 5 is consistent in its definition of anoperating segment.An operating segment is a component of an entity:(a) that engages in business activities from whichit may earn revenues and incur expenses(including revenues and expenses relating totransactions with other components of thesame entity),(b) whose operating results are regularly reviewedby the entity’s chief operating decision maker tomake decisions about resources to be allocatedto the segment and assess its performance, and(c)for which discrete financial information isavailable.An operating segment may engage in businessactivities for which it has yet to earn revenues, forexample, start-up operations may be operating segmentsbefore earning revenues.Additionally, the guidance under each standard forreportable segments, including the quantitative thresholdsfor determining which segments require disclosure,is consistent.Under Canadian GAAP at present, any entity that filesfinancial statements with a securities commission isrequired to apply segment reporting. By contrast, entitiesare only within the scope of IFRS 8 16 if they haveissued securities that are traded in a public market, orif the entity files financial statements with a securitiescommission for the purpose of issuing securities in apublic market. 17 Units of many investment funds are notpublicly traded (i.e. they are subscribed to and redeemeddirectly with the fund itself, but not traded) and therefore,it may be argued that such investment funds willnot be subject to the requirements of IFRS 8.One view is that there does not appear to be any significantdifference between the reporting frameworksthat would otherwise require amendments to currentpractices for segment reporting by investment funds.Alternatively, strict interpretation of IFRS 8 may leadto the conclusion that segments within a portfolio mayrepresent operating segments if the quantitative thresholdsin IFRS 8 are exceeded, and if the results of suchsegments are reviewed regularly by the chief operatingdecision maker.In the Study Group’s view, investment funds will berequired to present segment disclosures only where thesecurities of the fund are exchange-traded. In caseswhere segment reporting does apply, little deviationfrom current practice is expected given the consistencybetween IFRS 8 and Section 1701.16 Refer also to Chapter 3, Earnings Per Share.17 IFRS 8 paragraph 2 states, in part, that: This IFRS shall apply to:(a) the separate or individual financial statements of an entity:(i) whose debt or equity instruments are traded in a publicmarket (a domestic or foreign stock exchange or an over-thecountermarket, including local and regional markets), or(ii) that files, or is in the process of filing, its financial statementswith a securities commission or other regulatory organisationfor the purpose of issuing any class of instruments in apublic market; and... .25