Deloitte comment letter on new draft SORP for UK Authorised Funds

Published on: 04 Nov, 2013

We have published our comment letter on the revised Statement of Recommended Practice (SORP) for UK Authorised Funds ("the IMA SORP”) issued by the Investment Management Association (IMA). We support the proposed revisions to the IMA SORP, commenting that these are “broadly consistent with changes in the regulatory and accounting framework” but also highlight cases where there are deviations from the requirements of Financial Reporting Standards 100 – 103 for consideration by the IMA.

We have the following specific comments:

  • FRS 102 allows entities and accounting policy choice over the recognition and measurement requirements to apply for financial instruments. However the SORP is not explicit as to whether all entities within the scope of the SORP should apply the provisions in Sections 11 and 12 of FRS 102 in full (one of the options) or allow entities a free choice. If the latter, then we comment that “some of the guidance in the SORP may need to be amended including that related to fair value”.
  • The proposed SORP requires that debt instruments are designated as at fair value through profit or loss but there is no explicit requirement in the SORP in respect of debt instruments that are liabilities.
  • The proposed SORP does not explain how, on the asset side, investments are to be valued at their fair value and should have an explicit requirement in relation to designation.
  • Compliance with the disclosure requirements in the IMA SORP “will generally result in full compliance with the disclosure requirements of Sections 11, 12 and 34 but will not do so in all cases”.

On other aspects of the proposals we also comment that “funds may find it challenging in practice to obtain the proposed further breakdown of dealing costs into execution and research components”. We note that, in order to capture information at this level, Fund Administrators will need to implement new systems and we propose that additional guidance “on how to attribute dealing costs between the two components may be helpful to preparers”. We also comment that, although removing guidance relating to the separation of embedded derivatives is consistent with the requirements of Sections 11 and 12 of FRS 102, this “will make the revenue recognition on such instruments both more volatile and more complex than it is today” and “on balance” should be retained.

Further comments and full response to all questions raised in the invitation to comment are contained within the full comment letter which can be downloaded below.


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