IFRS IILUSTRATIVE FINANCIAL STATEMENTS: INVESTMENT FUNDS pot

IFRS
Illustrative financial
statements:
Investment funds
December 2011




kpmg.com/ifrs
Contents
Financial statements
Statement of financial position 3
Statement of comprehensive income 5
Statement of changes in net assets
attributable to holders of redeemable shares 7
Statement of cash flows 9
Notes to the financial statements 11
Appendices
I Example disclosures for entities that early adopt
IFRS 9 Financial Instruments (October 2010) 79
II Example disclosures of segment reporting – multiple
segment fund 91
III Example disclosures of open-ended fund with puttable
instruments classified as equity 99
IV Example disclosures of schedule of investments –
unaudited 109
V Example disclosures of exposure to market risk –
Value-at-Risk analysis 113
Technical guide 116
Contact us 118

© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
What’s new?
Major changes from the December 2010 edition of Illustrative financial statements: Investment funds are highlighted by a
double line border running down the left margin of the text within this document. The major change from the December 2010
edition is example disclosures for the early adoption of IFRS 9 Financial instruments issued in October 2010.
About this publication
These illustrative financial statements have been produced by the KPMG International Standards Group (part of KPMG IFRG
Limited), and the views expressed herein are those of the KPMG International Standards Group.
Content
The purpose of this publication is to assist you in preparing annual financial statements of an investment fund in accordance
with IFRSs. It illustrates one possible format of financial statements for fund-specific entities based on a fictitious tax-exempt
open-ended single-fund investment company, which does not form part of a consolidated entity nor holds investments in
any subsidiaries, associates or joint venture entities. The company’s redeemable shares are classified as financial liabilities
and the management shares meet the definition of equity; the company is outside the scope of IFRS 8 Operating Segments.
The company is not a first-time adopter of IFRSs (see Technical guide). Appendix I illustrates example disclosures for the
early adoption of IFRS 9. Appendix II provides an example of disclosures for a fund within the scope of IFRS 8 with multiple
reportable segments. Appendix III provides an example of disclosures for a fund whose puttable instruments are classified as
equity.
This publication reflects IFRSs in issue at 20 December 2011 that are required to be applied by an entity with an annual period
beginning on 1 January 2011 (’currently effective’ requirements). IFRSs that are effective for annual periods beginning after
1January 2011 (’forthcoming’ requirements) have not been adopted early in preparing these illustrative financial statements.
However, example disclosures for the early adoption of IFRS 9 are included in Appendix I. This publication focuses on disclosure
requirements that are specific to funds’ activities. For other disclosures that might be relevant, please refer to our publications
Illustrative financial statements and Illustrative financial statements: Banks.
This publication illustrates only the financial statements component of a financial report. However, typically a financial report
will include at least some additional commentary by management, either in accordance with local laws and regulations or at the
election of the fund (see Technical guide).
When preparing financial statements in accordance with IFRSs, a fund should have regard to its local legal and regulatory
requirements. This publication does not consider any requirements of a particular jurisdiction.
In response to the Financial Stability Board report Enhancing Market and Institutional Resilience the IASB established an Expert

Advisory Panel (the panel) to assist the IASB in reviewing best practices in the area of valuation techniques and formulating any
necessary additional guidance on valuation methods for financial instruments and related disclosures when markets are no
longer active. The panel issued its final report Measuring and disclosing the fair value of financial instruments in markets that are
no longer active on 31 October 2008. Part 2 of the report contains guidance on disclosures. This publication does not illustrate
these disclosures, unless they are also required by IFRS 7. For an illustrative example of disclosures in the panel’s report and
explanatory notes see our publication Illustrative financial statements: Banks published in July 2011.
IFRSs and their interpretation change over time. Accordingly, these illustrative financial statements should not be used as a
substitute for referring to the standards and interpretations themselves.
References
The illustrative financial statements are contained on the odd-numbered pages of this publication. The even-numbered pages
contain explanatory comments and notes on the disclosure requirements of IFRSs. The illustrative examples, together with the
explanatory notes, however, are not intended to be seen as a complete and exhaustive summary of all disclosure requirements
that are applicable under IFRSs. For an overview of all disclosure requirements that are applicable under IFRSs, see our
publication Disclosure checklist.
To the left of each item disclosed, a reference to the relevant currently effective standard is provided; generally the references
relate only to disclosure requirements, except that note 3 highlights some accounting requirements in relation to significant
accounting policies. These illustrative financial statements also contain references to our publication Insights into IFRS
(8thEdition).
2 | Illustrative financial statements: Investment funds
© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Explanatory note
1.
IAS 1.55, 58
Additional line items, headings and subtotals are presented separately in the statement of financial
position when such presentation is relevant to an understanding of the entity’s financial position. The
judgement used is based on an assessment of the nature and liquidity of the assets, the function of
assets within the entity, as well as the amounts, nature and timing of liabilities. Additional line items
may include, e.g. prepayments.
IAS 1.57
IAS 1 does not prescribe the order or format in which an entity presents items. Additional line

items are included when the size, nature or function of an item or aggregation of similar items is
such that separate presentation is relevant to an understanding of the entity’s financial position and
the descriptions used, and the ordering of items or aggregation of similar items may be amended
according to the nature of the entity and its transactions to provide information that is relevant to an
understanding of an entity’s financial position.
2.
IAS 1.60, 61
In these illustrative financial statements we have presented assets and liabilities broadly in order of
liquidity. An entity also may present its assets and liabilities using a current/non-current classification
if such presentation provides reliable and more relevant information. For each asset and liability line
item that combines amounts expected to be recovered or settled within (1) no more than 12 months
after the end of the reporting period, and (2) more than 12 months after the end of the reporting
period, an entity discloses in the notes the amount expected to be recovered or settled after more
than 12 months.
3.
IFRS 7.8
The carrying amounts of each of the categories of financial assets and financial liabilities are required
to be disclosed in either the statement of financial position or the notes. In these illustrative financial
statements this information is presented in the notes.
4.
It has been assumed for the purpose of these illustrative financial statements that management
shares issued by the Fund meet the definition of equity. Determination of whether an instrument
meets the definition of equity can be complex and is further discussed in our publication Insights into
IFRS (7.3.50 – 310).
5.
IAS 32 IE32
In these illustrative financial statements presentation of the statement of financial position follows
the Example 7 in IAS 32.
6.
IAS 39.48A,

AG72
In accordance with IAS 39 the best measure of fair value of a financial asset and financial liability
is a quoted price in an active market. The quoted price for an asset held is usually the current bid
price and for a liability held is the asking price. On the other hand, in accordance with the Fund’s
prospectus, the redemption amounts of the redeemable shares are calculated using the mid-market
prices of the Fund’s underlying investments/securities sold short.
Owing to the differences in the measurement bases of the Fund’s underlying investments/
securities sold short and the redemption amounts of the redeemable shares, a mismatch results
in the statement of financial position giving rise to a presentation issue. In our view, one solution
may be to present the net assets attributable to holders of redeemable shares in a two-line format.
The first line would be the amount of the net assets attributable to holders of redeemable shares
measured in accordance with the prospectus, which reflects the actual redemption amount at
which the redeemable shares would be redeemed at the reporting date, and the next line would
include an adjustment for the difference between this and the amount recognised in the statement
of financial position. This reflects the fact that for a fund with no equity all recognised income and
expense is attributed to holders of redeemable shares, which also means that if all the shares are
redeemed, then a dilution levy of such amount would be required. This issue is discussed in our
publication Insights into IFRS (7.6.220.60 – 75). The treatment in a fund with no equity is applied in
these illustrative financial statements to a fund with minimal equity as equity holders are entitled to a
minimal fixed monetary amount on liquidation and the remaining net assets are attributed to holders
of redeemable shares.
Illustrative financial statements: Investment funds | 3
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Statement of financial position
1, 2, 3, 4, 5
IAS 1.10(a), 113
31 December 31 December
In thousands of euro Note 2011 2010
Assets
IAS 1.54(i)

Cash and cash equivalents 51 71
IAS 1.54(d)
Balances due from brokers 10 4,619 3,121
IAS 1.54(d)
Receivables from reverse repurchase agreements 11 4,744 3,990
IAS 1.54(h)
Other receivables 29 46
IAS 1.54(d)
Non-pledged financial assets at fair value through profit or loss 12 26,931 24,471
IAS 1.54(d), 39.37(a)
Pledged financial assets at fair value through profit or loss 12 2,691 2,346
Total assets 39,065 34,045
Equity
5
Share capital 13 10 10
Total equity 10 10
Liabilities
IAS 1.54(m)
Balances due to brokers 10 143 275
IAS 1.54(m)
Payables under repurchase agreements 11 2,563 2,234
IAS 1.54(k)
Other payables 103 101
IAS 1.54(m)
Financial liabilities at fair value through profit or loss 12 3,621 1,446
Total liabilities (excluding net assets attributable to
holders of redeemable shares)
6,430 4,056
IAS 1.6, 54(m),
Net assets attributable to holders of redeemable

32.IE32
shares
6
14 32,625 29,979
Represented by:
Net assets attributable to holders of redeemable shares
(valued in accordance with prospectus)
6
32,647 29,996
Adjustment from mid-market prices to bid/ask-market prices
6
14 (22) (17)
32,625 29,979
The notes on pages 11 to 77 are an integral part of these financial statements.
4 | Illustrative financial statements: Investment funds
© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Explanatory note
1.
IAS 1.81
Total comprehensive income is the changes in equity during a period other than those changes
resulting from transactions with owners in their capacity as owners, which is presented either in:
• one statement, i.e. a statement of comprehensive income; or
• two statements, i.e. a separate income statement and a statement beginning with profit or loss and
displaying components of other comprehensive income.
IAS 1.81(a)
This illustration is based on a single statement of comprehensive income as the Fund has no other
components of other comprehensive income other than profit or loss for the period. For an example
of the two statements approach, please refer to our publication Illustrative financial statements.
IAS 32.IE32
In these illustrative financial statements presentation of the statement of comprehensive income

follows the Example 7 in IAS 32.
IFRS 7.20
Items of income and expense are offset only when required or permitted by an IFRS. IFRS 7 allows
the net presentation of certain gains and losses on financial assets and financial liabilities. This issue
is discussed in our publication Insights into IFRS (4.1.170).
IAS 1.85
An entity presents additional line items, headings and subtotals when this is relevant to an
understanding of its financial performance.
2.
IAS 1.99
An entity presents an analysis of expenses based on function or nature. Items are classified in
accordance with their nature or function regardless of materiality. In these illustrative financial
statements, this analysis is based on the nature of expenses.
IAS 1.87
No items of income or expense may be presented as extraordinary. The nature and amounts of
material items are disclosed as a separate line item in the statement of comprehensive income or in
the notes. This issue is discussed in our publication Insights into IFRS (4.1.84 – 86).
3.
IAS 1.82(a)
IFRSs do not specify whether revenue should be presented only as a single line item in the
statement of comprehensive income, or whether an entity also may include the individual
components of revenue in the statement of comprehensive income, with a subtotal for revenue
from continuing operations. In these illustrative financial statements, the most relevant measure
of revenue is considered to be the sum of interest income, dividend income, net foreign exchange
loss and net gain from financial instruments at fair value through profit or loss. However, other
presentations are possible.
4.
IFRS 7.20(c)(ii)
Fee income and expense arising from trust and other fiduciary activities that result in the holding or
investing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions are

required to be disclosed. In these illustrative financial statements this disclosure has been given in
the statement of comprehensive income. Alternatively, it may be given in the notes.
5.
IAS 32.35, 40
Interest, dividends, gains and losses relating to a financial instrument or a component that is a
financial liability are recognised as income or expense in profit or loss. Because redeemable shares
are classified as financial liabilities, any distributions on these shares are presented as finance costs.
Interest expense and dividends payable on securities sold short have been classified as operating
expense, but, depending on the facts and circumstances, presentation as part of finance cost is also
possible.
6.
IAS 12.2
In our view, withholding taxes attributable to investment income (e.g. dividends received) should be
recognised as part of tax expense, with the investment income recognised on a gross basis. This
issue is discussed in our publication Insights into IFRS (3.13.420.30).
7.
IAS 33.2, 3
An entity with publicly traded ordinary shares or in the process of issuing ordinary shares that are
to be publicly traded, should present basic and diluted earnings per share (EPS) in the statement
of comprehensive income. The requirements to present EPS only apply to those funds whose
ordinary shares are classified as equity. Nevertheless, some funds may wish to or may be required
by local regulations to present EPS. When an entity voluntarily presents EPS data, that data should
be calculated and presented in accordance with IAS 33. This issue is discussed in our publication
Insights into IFRS (5.3.370).
Illustrative financial statements: Investment funds | 5
© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Statement of comprehensive income
1, 2
IAS 1.10(b), 81(a)
For the year ended 31 December

In thousands of euro Note 2011 2010
Interest income
3
7 603 429
IAS 18.35(b)(v)
Dividend income
3
272 229
IAS 1.35
Net foreign exchange loss
3
(19) (16)
IFRS 7.20(a)
Net gain from financial instruments at fair value through
profit or loss
3
8 3,251 2,397
IAS 1.82(a)
Total revenue
3
4,107 3,039
IAS 1.99
Investment management fees
4
(478) (447)
IAS 1.99
Custodian fees
4
(102) (115)
IAS 1.99

Administration fees
4
(66) (62)
IAS 1.99
Directors’ fees (26) (15)
IAS 1.99
Transaction costs (54) (73)
IAS 1.99
Audit and legal fees (74) (67)
IFRS 7.20(b)
Interest expense
5
(75) (62)
Dividend expense on securities sold short
5
(45) (19)
IAS 1.99
Other operating expenses (8) (41)
Total operating expenses (928) (901)
IAS 1.85
Operating profit before finance costs 3,179 2,138
IAS 32.40
Dividends to holders of redeemable shares
5
14 (178) (91)
IAS 1.82(b)
Total finance costs (178) (91)
IAS 1.85
Increase in net assets attributable to holders of redeemable
shares before tax 3,001 2,047

IAS 1.82(d)
Withholding tax expense
6
9 (45) (39)
IAS 1.6, 1.82(f),
Increase in net assets attributable to holders of
32.IE32
redeemable shares 2,956 2,008
The notes on pages 11 to 77 are an integral part of these financial statements.
6 | Illustrative financial statements: Investment funds
© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Explanatory note
1.
IAS 1.106
A complete set of financial statements comprises, as one of its statements, a statement of
changes in equity. However, as equity in the Fund is minimal and there were no changes in equity
balances, no statement of changes in equity is presented. Instead, a statement of changes in net
assets attributable to holders of redeemable shares is presented. Although IFRSs do not require
presentation of this statement, it may provide users of the financial statements with relevant and
useful information with respect to the components underlying the movements in the net assets of
the Fund attributable to the holders of redeemable shares during the year.
2.
IAS 1.110
When a change in accounting policy, either voluntarily or as a result of the initial application of a
standard, has an effect on the current period or any prior period, an entity presents the effects of
retrospective application or retrospective restatement recognised in accordance with IAS 8 in the
statement of changes in equity. These illustrative financial statements do not demonstrate example
of IAS 8 disclosures; for an example of such disclosures, please refer to our publication Illustrative
financial statements.
Illustrative financial statements: Investment funds | 7

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Statement of changes in net assets attributable to holders of
redeemableshares
1
IAS 1.106
For the year ended 31 December
In thousands of euro Note 2011 2010
Balance at 1 January 14 29,979 18,461
Increase in net assets attributable to holders of redeemable
shares 2,956 2,008
Contributions and redemptions by holders of redeemable
shares:
Issue of redeemable shares during the year 6,668 15,505
Redemption of redeemable shares during the year (6,978) (5,995)
Total contributions and redemptions by holders of
redeemable shares (310) 9,510
Balance at 31 December 14 32,625 29,979
The notes on pages 11 to 77 are an integral part of these financial statements.
8 | Illustrative financial statements: Investment funds
© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Explanatory note
1.
IAS 7.18, 19
In these illustrative financial statements cash flows from operating activities are presented using the
direct method, whereby major classes of cash receipts and payments related to operating activities
are disclosed. An entity also may present operating cash flows using the indirect method, whereby
profit or loss is adjusted for the effects of non-cash transactions, accruals and deferrals, and items
of income or expense associated with investing or financing cash flows. For an example statement
of cash flows presenting operating cash flows using the indirect method see our publications
Illustrative financial statements or Illustrative financial statements: Banks.

IAS 7.43
When applicable, an entity discloses investing and financing transactions that are excluded from the
statement of cash flows because they do not require the use of cash or cash equivalents in a way
that provides all relevant information about these activities.
2.
IAS 7.33, 34
Interest paid and interest and dividends received are usually classified as operating cash flows for
a financial institution. Dividends paid may be classified as a financing cash flow as they represent
a cost of obtaining financial resources. The Fund has adopted this classification for dividends paid
to the holders of redeemable shares. In these illustrative financial statements dividends paid on
securities sold short are classified as operating cash flows as they result directly from holding short
positions as part of the operating activities of the Fund.
3.
IAS 7.14(g), 15
In these illustrative financial statements gross receipts from the sale of, and gross payments to
acquire, investment securities have been classified as components of cash flows from operating
activities as they form part of the Fund’s dealing operations.
IAS 7.16(g), (h)
Receipts from and payments for futures, forwards, options and swap contracts are presented as
part of either investing or financing activities, provided that they are not held for dealing or trading
purposes, in which case they are presented as part of operating activities. However, when a hedging
instrument is accounted for as a hedge of an identifiable position, the cash flows of the hedging
instrument are classified in the same manner as the cash flows of the positions being hedged. This
issue is discussed in our publication Insights into IFRS (2.3.60.10).
If hedge accounting is not applied to a derivative instrument that is entered into as an economic
hedge, then in our view derivative gains and losses may be shown in the statement of
comprehensive income as either operating or financing items depending on the nature of the item
being economically hedged. In our view, the possibilities for the presentation in the statement of
comprehensive income also apply to the presentation in the statement of cash flows. This issue is
discussed in our publication Insights into IFRS (7.8.220 – 225).

4.
IAS 7.22
Cash flows from operating, investing or financing activities may be reported on a net basis if the
cash receipts and payments are on behalf of customers and the cash flows reflect the activities of
the customer, or when the cash receipts and payments for items concerned turn over quickly, the
amounts are large and the maturities are short.
Illustrative financial statements: Investment funds | 9
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Statement of cash flows
1
IAS 1.10(d), 113
For the year ended 31 December
In thousands of euro Note 2011 2010
IAS 7.10
Cash flows from operating activities
IAS 7.31, 33
Interest received
2
619 454
IAS 7.31, 33
Interest paid
2
(73) (63)
IAS 7.31, 33
Dividends received
2
227 228
IAS 7.31, 33
Dividends paid on securities sold short
2

(45) (19)
IAS 7.15
Proceeds from sale of investments
3
9,382 8,271
IAS 7.15
Purchase of investments
3
(10,613) (17,713)
IAS 7.15
Acquisition of investments
3
(10,613) (17,713)
IAS 7.22(b)
Net non-dividend receipts/(payments) on securities sold short
4
629 (2)
IAS 7.22(b)
Net receipts/(payments) from derivative activities
4
1,581 (3)
IAS 7.22(b)
Net non-interest (payments)/receipts from repurchase
and reverse repurchase agreements
4
(428) 299
IAS 7.14
Operating expenses paid (808) (848)
Net cash from/(used in) operating activities 471 (9,396)
IAS 7.10, 21

Cash flows from financing activities
IAS 7.17
Proceeds from issue of redeemable shares 14 6,668 15,505
IAS 7.17
Payments on redemption of redeemable shares 14 (6,978) (5,995)
IAS 7.34
Dividends paid to holders of redeemable shares
2
14 (178) (91)
Net cash (used in)/from financing activities (488) 9,419
Net (decrease)/increase in cash and cash equivalents (17) 23
Cash and cash equivalents at 1 January 71 50
IAS 7.28
Effect of exchange rate fluctuations on cash and cash equivalents (3) (2)
Cash and cash equivalents at 31 December
51 71
The notes on pages 11 to 77 are an integral part of these financial statements.
10 | Illustrative financial statements: Investment funds
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Explanatory note
1.
IAS 1.7
The notes include narrative descriptions or break-downs of amounts disclosed in the primary
statements. They also include information about items that do not qualify for recognition in the
financial statements.
Illustrative financial statements: Investment funds | 11
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Notes to the financial statements
1
Page

1. Reporting entity 13
2. Basis of preparation 13
3. Significant accounting policies 15
4. Financial risk management 27
5. Use of estimates and judgements 55
6. Classifications and fair values of financial assets and liabilities 63
7. Interest income 65
8. Net gain from financial instruments at fair value through profit or loss 65
9. Withholding tax expense 65
10. Balances due from/to brokers 67
11. Receivables from reverse repurchase agreements and payables
under repurchase agreements 67
12. Financial assets and financial liabilities at fair value through profit or loss 69
13. Equity 69
14. Net assets attributable to holders of redeemable shares 71
15. Related parties and other key contracts 75
16. Subsequent events 77
12 | Illustrative financial statements: Investment funds
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Explanatory note
1.
If financial statements are prepared on the basis of national accounting standards that are modified
or adapted from IFRSs and are made publicly available by publicly traded companies, then the
International Organization of Securities Commissions (IOSCO) has recommended including the
following minimum disclosures:
• a clear and unambiguous statement of the reporting framework on which the accounting policies
are based;
• a clear statement of the entity’s accounting policies on all material accounting areas;
• an explanation of where the respective accounting standards can be found;
• a statement explaining that the financial statements are in compliance with IFRSs as issued by the

IASB, if this is the case; and
• a statement explaining in what regard the standards and the reporting framework used differ from
IFRSs as issued by the IASB, if this is the case.
2.
IAS 1.36
When the entity changes the end of its reporting period and annual financial statements are
presented for a period longer or shorter than one year, it discloses the reason for the change and the
fact that comparative amounts presented are not entirely comparable.
In this and other cases an entity may wish to present pro forma information that is not required by
IFRSs, e.g. pro forma comparative financial statements prepared as if the change in the end of the
reporting period were effective for all periods presented. The presentation of pro forma information is
discussed in our publication Insights into IFRS (2.1.80).
3.
IAS 1.19, 20, 23
In the extremely rare circumstances in which management concludes that compliance with a
requirement of a standard or an interpretation would be so misleading that it would conflict with the
objective of financial statements set out in the Conceptual Framework for Financial Reporting, an
entity may depart from the requirement if the relevant regulatory framework requires or otherwise
does not prohibit such a departure. Extensive disclosures are required in these circumstances.
4.
IAS 10.17
An entity discloses the date when the financial statements were authorised for issue and who gave
that authorisation. If the entity’s owners or others have the power to amend the financial statements
after their issue, then the entity discloses that fact.
5.
IAS 1.25, 10.16
Taking account of specific requirements in its jurisdiction, an entity discloses any material
uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability
to continue as a going concern, whether they arise during the period or after the end of the reporting
period.

6.
IAS 21.53, 54
If the financial statements are presented in a currency different from the entity’s functional currency,
then the entity discloses that fact, its functional currency, and the reason for using a different
presentation currency. If there is a change in the functional currency, then the entity discloses that
fact together with the reason for the change.
7.
IAS 1.122–124
An entity discloses the judgements, apart from those involving estimations, that management has
made in the process of applying the entity’s accounting policies and that have the most significant
effect on the amounts recognised in the financial statements. The examples that are provided in
IAS1 indicate that such disclosure is based on qualitative data.
IAS 1.125, 129
An entity discloses the assumptions that it has made about the future, and other major sources
of estimation uncertainty at the reporting date, that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next financial year. The
examples that are provided in IAS 1 indicate that such disclosure is based on quantitative data, e.g.
appropriate discount rates.
Illustrative financial statements: Investment funds | 13
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Notes to the financial statements
IAS 1.10(e), 51(a),
1. Reporting entity
(b), 1.138(a), (b)

[Name] (the ‘Fund’) is a company domiciled in [country]. The address of the Fund’s registered office
is [address]. The Fund’s shares are not traded in a public market and it does not file its financial
statements with a securities commission or other regulatory organisation for the purpose of issuing
any class of instruments in a public market.
The Fund is an open-ended investment fund primarily involved in investing in a highly diversified

portfolio of equity securities issued by companies listed on major European stock exchanges and on
the New York Stock Exchange (NYSE), unlisted companies, unlisted investment funds, international
derivatives and investment grade debt securities with the objective of providing shareholders with
above average returns over the medium to long term.
IAS 1.138(a), (b)
The investment activities of the Fund are managed by XYZ Capital Limited (the investment manager)
and the administration of the Fund is delegated to ABC Fund Services Limited (the administrator).
IAS 1.112(a)
2. Basis of preparation
1
(a) Statement of compliance
IAS 1.16
The financial statements of the Fund as at and for the year ended 31 December 2011
2
have been
prepared in accordance with International Financial Reporting Standards (IFRSs).
3
IAS 10.17
The financial statements were authorised for issue by the board of directors on [date].
4
(b) Basis of measurement
5
IAS 1.117(a)
The financial statements have been prepared on the historical cost basis except for financial
instruments at fair value through profit or loss, which are measured at fair value.
(c) Functional and presentation currency
6
IAS 1.51(d), (e)
These financial statements are presented in euro, which is the Fund’s functional currency. All financial
information presented in euro has been rounded to the nearest thousand.

(d) Use of estimates and judgements
7
The preparation of the financial statements in conformity with IFRSs requires management to
make judgements, estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimates are revised and in any future
periods affected.
IAS 1.122, 125
Information about assumptions and estimation uncertainties that have a significant risk of resulting
in a material adjustment within the next financial year, as well as critical judgements in applying
accounting policies that have the most significant effect on the amounts recognised in the financial
statements are included in notes 4 and 5.
14 | Illustrative financial statements: Investment funds
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Explanatory note
1.
When a change in accounting policy is the result of the adoption of a new, revised or amended
IFRS, an entity applies the specific transitional requirements in that IFRS. However, in our view
an entity nonetheless should comply with the disclosure requirements of IAS 8 to the extent that
the transitional requirements do not include disclosure requirements. Even though it could be
argued that the disclosures are not required because they are set out in the IAS 8 requirements for
voluntary changes in accounting policy, we believe that they are necessary in order to give a fair
presentation. This issue is discussed in our publication Insights into IFRS (2.8.10). For an example
of disclosures relating to a change in accounting policy see our publication Illustrative financial
statements.
2.
IAS 8.28, 29
When a change in accounting policy, either voluntarily or as a result of the initial application of a

standard, has an effect on the current period or any prior period, an entity discloses, among other
things, the amount of the adjustment for each financial statement line item affected.
IAS 8.49
If any prior period errors are corrected in the current year’s financial statements, then an entity
discloses:
• the nature of the prior period error;
• to the extent practicable, the amount of the correction for each financial statement line item
affected, and, if IAS 33 applies to the entity, basic and diluted earnings per share for each prior period
presented;
• the amount of the correction at the beginning of the earliest prior period presented; and
• if retrospective restatement is impracticable for a particular prior period, then the circumstances
that led to the existence of that condition and a description of how and from when the error has
been corrected.
3.
IAS 1.117(b)
The accounting policies describe each specific accounting policy that is relevant to an understanding
of the financial statements.
IAS 8.5
Accounting policies are the specific principles, bases, conventions, rules and practices that an entity
applies in preparing and presenting financial statements.
4.
The accounting policies disclosed in these illustrative financial statements reflect the facts and
circumstances of the fictitious open-ended single-fund investment company on which these financial
statements are based. They should not be relied upon for a complete understanding of IFRSs and
should not be used as a substitute for referring to the standards and interpretations themselves. The
accounting policy disclosures appropriate for an entity depend on the facts and circumstances of that
entity, including the accounting policy choices an entity makes, and may differ from the disclosures
illustrated in these illustrative financial statements.
5.
IFRS 7.B5(e)

An entity discloses how the statement of comprehensive income amounts are determined, e.g.
whether net gains and losses of financial assets and liabilities measured at fair value through profit or
loss include interest and dividend income.
IFRS 7.20(b)
In these illustrative statements interest income for financial assets at fair value through profit or
loss is presented separately from net gain from financial instruments at fair value through profit or
loss. However, other presentations, e.g. inclusion of interest income with the gain from financial
instruments at fair value through profit or loss, are permitted.
6.
The method of calculating the effective interest rate is discussed in our publication Insights into IFRS
(7.6.290).
Illustrative financial statements: Investment funds | 15
© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Notes to the financial statements
2. Basis of preparation (continued)
(e) Changes in accounting policies
1, 2
There were no changes in the accounting policies of the Fund during the year.
IAS 1.112(a),
3. Significant accounting policies
3, 4
117(a), (b)
The accounting policies set out below have been applied consistently to all periods presented in
these financial statements.
(a) Foreign currency
IAS 21.21, 23(a)
Transactions in foreign currencies are translated into euro at the exchange rate at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date
are retranslated into euro at the exchange rate at that date.
IAS 21.23

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value
are retranslated into euro at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on retranslation are recognised in profit or loss as net foreign
exchange loss, except for those arising on financial instruments at fair value through profit or loss,
which are recognised as a component of net gain from financial instruments at fair value through
profit or loss.
IFRS 7.B5(e)
(b) Interest
5, 6
IAS 18.35(b)(iii)
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.
The effective interest rate is the rate that exactly discounts the estimated future cash payments and
receipts through the expected life of the financial instrument (or, when appropriate, a shorter period)
to the carrying amount of the financial instrument. When calculating the effective interest rate, the
Fund estimates future cash flows considering all contractual terms of the financial instrument, but
not future credit losses. Interest received or receivable, and interest paid or payable are recognised in
profit or loss as interest income and interest expense, respectively.
IFRS 7.21, B5(e)
(c) Dividend income and dividend expense

Dividend income is recognised in profit or loss on the date that the right to receive payment is
established. For quoted equity securities this is usually the ex-dividend date. For unquoted equity
securities this is usually the date when the shareholders have approved the payment of a dividend.
Dividend income from equity securities designated as at fair value through profit or loss is recognised
in profit or loss as a separate line item.
The Fund incurs expenses on short positions in equity securities equal to the dividends due on these
securities. Such dividend expense is recognised in profit or loss as operating expense when the
shareholders’ right to receive payment is established.
IFRS 7.B5(e)

(d) Dividends to holders of redeemable shares
Dividends payable to holders of redeemable shares are recognised in profit or loss as finance costs
when they are authorised and no longer at the discretion of the Fund. [Provide more detail to reflect
the circumstances of the particular fund].
16 | Illustrative financial statements: Investment funds
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Explanatory note
1.
IFRS 7.B5(e)
In these illustrative financial statements net gain from financial instruments at fair value through
profit or loss includes:
• gains and losses, other than interest and dividend income, on financial assets and financial liabilities
designated as at fair value through profit or loss;
• gains and losses, other than dividends payable on securities sold short classified as held for trading;
and
• gains and losses on all derivatives.
However, other presentations are possible, e.g. this line also could include interest and dividend
income, interest expense and dividends on securities sold short.
2.
In our view, an entity may apply any reasonable cost allocation method to determine the cost of
financial assets sold that are part of a homogeneous portfolio (e.g. average cost or first-in, first-
out). The selected method should be applied consistently. This issue is discussed in our publication
Insights into IFRS (7.5.290.50 – 60).
3.
IFRS 7.28
An entity discloses the following in respect of any day one gain or loss:
• an accounting policy; and
• the aggregate difference still to be recognised in profit or loss, and a reconciliation between the
opening and closing balance thereof.
4.

IAS 39.9, 11A
Financial assets or liabilities (other than those classified as held for trading) may be designated upon
initial recognition as at fair value through profit or loss, in any of the following circumstances, if they:
• eliminate or significantly reduce a measurement or recognition inconsistency (‘accounting
mismatch’) that would otherwise arise from measuring assets and liabilities or recognising the gains
or losses on them on different bases;
• are part of a group of financial assets and/or financial liabilities that is managed and for which
performance is evaluated and reported to key management on a fair value basis in accordance with a
documented risk management or investment strategy; or
• are hybrid contracts in which an entity is permitted to designate the entire contract at fair value
through profit or loss.
IAS 39.AG4B
These illustrative financial statements demonstrate the fair value option for debt securities and
equity investments that are managed and evaluated on a fair value basis as part of the Fund’s
documented investment strategy.
Illustrative financial statements: Investment funds | 17
© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Notes to the financial statements
3. Significant accounting policies (continued)
IFRS 7.21, B5(e)
(e) Net gain from financial instruments at fair value through profit or loss
1
Net gain from financial instruments at fair value through profit or loss includes all realised and
unrealised fair value changes and foreign exchange differences, but excludes interest and dividend
income, and dividend expense on securities sold short.
Net realised gain from financial instruments at fair value through profit or loss is calculated using the
average cost method.
2
IFRS 7.21
(f) Fees and commission expenses

Fees and commission expenses are recognised in profit or loss as the related services are
performed.
(g) Tax
IAS 12.2
Under the current system of taxation in [insert name of the country of domicile] the Fund is exempt
from paying income taxes. The Fund has received an undertaking from [insert name of the relevant
government body] of [insert name of the country of domicile] exempting it from tax for a period of
[insert number of] years up till [insert year of expiry].
However, some dividend and interest income received by the Fund are subject to withholding tax
imposed in certain countries of origin. Income that is subject to such tax is recognised gross of the
taxes and the corresponding withholding tax is recognised as tax expense.
IFRS 7.21
(h) Financial assets and financial liabilities
IAS 39.14, 38
(i) Recognition and initial measurement
3
IFRS 7.B5(c)
Financial assets and liabilities at fair value through profit or loss are recognised initially on the trade
date, which is the date that the Fund becomes a party to the contractual provisions of the instrument.
Other financial assets and liabilities are recognised on the date they are originated.
Financial assets and financial liabilities at fair value through profit or loss are recognised initially at fair
value, with transaction costs recognised in profit or loss. Financial assets or financial liabilities not
at fair value through profit or loss are recognised initially at fair value plus transaction costs that are
directly attributable to their acquisition or issue.
(ii) Classification
The Fund classifies financial assets and financial liabilities into the following categories:
Financial assets at fair value through profit or loss:
●
Held for trading – derivative financial instruments
●

Designated as at fair value through profit or loss – debt securities and equity investments.
4
Financial assets at amortised cost:
●
Loans and receivables – cash and cash equivalents, balances due from brokers, receivables from
reverse repurchase agreements and other receivables.
Financial liabilities at fair value through profit or loss:
●
Held for trading – securities sold short and derivative financial instruments.
Financial liabilities at amortised cost:
●
Other liabilities – balances due to brokers, payables under repurchase agreements, redeemable
shares and other payables.
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Illustrative financial statements: Investment funds | 19
© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Notes to the financial statements
3. Significant accounting policies (continued)
(h) Financial assets and financial liabilities (continued)
(ii) Classification (continued)
IAS 39.9, AG15
A financial instrument is classified as held for trading, if:
●
it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term;
●
on initial recognition it is part of a portfolio that is managed together and for which there is
evidence of a recent pattern of short-term profit taking; or
●

it is a derivative, other than a designated and effective hedging instrument.
IAS 39.9
The Fund has designated certain financial assets as at fair value through profit or loss when the
assets are managed, evaluated and reported internally on a fair value basis.
A non-derivative financial asset with fixed or determinable payments may be classified as a loan
and receivable unless it is quoted in an active market, or it is an asset for which the holder may not
recover substantially all of its initial investment, other than because of credit deterioration.
Note 6 provides a reconciliation of line items in the statement of financial position to the categories
of financial instruments, as defined by IAS 39.
IAS 39.58
(iii) Amortised cost measurement
The amortised cost of a financial asset or liability is the amount at which the financial asset or
liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative
amortisation using the effective interest method of any difference between the initial amount
recognised and the maturity amount, minus any reduction for impairment.
IAS 39.48
(iv) Fair value measurement
Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction on the measurement date.
IAS 39.48A
When available, the Fund measures the fair value of an instrument using quoted prices in an active
market for that instrument. A market is regarded as active if quoted prices are readily and regularly
available and represent actual and regularly occurring market transactions on an arm’s length basis.
If a market for a financial instrument is not active, then the Fund establishes fair value using a
valuation technique. Valuation techniques include using recent arm’s length transactions between
knowledgeable, willing parties (if available), reference to the current fair value of other instruments
that are substantially the same, discounted cash flow analyses and option pricing models. The chosen
valuation technique makes maximum use of market inputs, relies as little as possible on estimates
specific to the Fund, incorporates all factors that market participants would consider in setting a price,
and is consistent with accepted economic methodologies for pricing financial instruments. Inputs

to valuation techniques reasonably represent market expectations and measures of the risk-return
factors inherent in the financial instrument. The Fund calibrates valuation techniques and tests them
for validity using prices from observable current market transactions in the same instrument or based
on other available observable market data.

20 | Illustrative financial statements: Investment funds
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Illustrative financial statements: Investment funds | 21
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Notes to the financial statements
3. Significant accounting policies (continued)

(h) Financial assets and financial liabilities (continued)
IAS 39.48
(iv) Fair value measurement (continued)
IFRS 7.28(a)
The best evidence of the fair value of a financial instrument at initial recognition is the transaction
price, i.e. the fair value of the consideration given or received, unless the fair value of that
instrument is evidenced by comparison with other observable current market transactions in the
same instrument (i.e. without modification or repackaging) or based on a valuation technique
whose variables include only data from observable markets. When transaction price provides the
best evidence of fair value at initial recognition, the financial instrument is initially measured at
the transaction price and any difference between this price and the value initially obtained from a
valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of
the instrument but not later than when the valuation is supported wholly by observable market data
or the transaction is closed out.
Assets and long positions are measured at a bid price; liabilities and securities sold short are
measured at an asking price.
IFRS 7.B5E

All changes in fair value, other than interest and dividend income and expense, are recognised in
profit or loss as part of net gain from financial instruments at fair value through profit or loss.
(v) Impairment
IFRS 7.B5(f)
A financial asset not classified at fair value through profit or loss is assessed at each reporting date to
determine whether there is objective evidence of impairment. A financial asset or a group of financial
assets is impaired if there is objective evidence of impairment as a result of one or more events
that occurred after the initial recognition of the asset(s), and that loss event(s) had an impact on the
estimated future cash flows of that asset(s) that can be estimated reliably.
IAS 39.65
Objective evidence that financial assets are impaired includes significant financial difficulty of the
borrower or issuer, default or delinquency by a borrower, restructuring of amount due on terms that
the Fund would not consider otherwise, indications that a borrower or issuer will enter bankruptcy, or
adverse changes in the payment status of the borrowers.
IAS 39.65, 66
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the
difference between its carrying amount and the present value of the estimated future cash flows
discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and
reflected in an allowance account against receivables. Interest on the impaired asset continues to
be recognised. When an event occurring after the impairment was recognised causes the amount of
impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
22 | Illustrative financial statements: Investment funds
© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Explanatory note
1.
IAS 1.35
Gains and losses arising from a group of similar transactions are reported on a net basis, e.g. foreign
currency gains and losses or gains and losses arising on financial instruments held for trading.
However, such gains and losses are reported separately if they are material.
Illustrative financial statements: Investment funds | 23

© 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Notes to the financial statements
3. Significant accounting policies (continued)
(h) Financial assets and financial liabilities (continued)
IAS 39.15–42
(vi) Derecognition
The Fund derecognises a financial asset when the contractual rights to the cash flows from the
asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred or in which
the Fund neither transfers nor retains substantially all the risks and rewards of ownership and does
not retain control of the financial asset. Any interest in such transferred financial assets that is
created or retained by the Fund is recognised as a separate asset or liability.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or
the carrying amount allocated to the portion of the asset derecognised), and consideration received
(including any new asset obtained less any new liability assumed) is recognised in profit or loss.
The Fund enters into transactions whereby it transfers assets recognised on its statement of financial
position, but retains either all or substantially all of the risks and rewards of the transferred assets or
a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets
are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards
include securities lending and repurchase transactions.
The Fund derecognises a financial liability when its contractual obligations are discharged, cancelled
or expire.
(vii) Offsetting
IAS 32.42
Financial assets and liabilities are offset and the net amount presented in the statement of financial
position when, and only when, the Fund has a legal right to offset the amounts and it intends either
to settle on a net basis or to realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted under IFRSs, e.g. for gains
and losses arising from a group of similar transactions, such as gains and losses from financial
instruments at fair value through profit or loss.

1
(viii) Specific instruments
IAS 7.46
Cash and cash equivalents
Cash and cash equivalents comprise deposits with banks and highly liquid financial assets with
maturities of three months or less from the acquisition date that are subject to an insignificant risk of
changes in their fair value and are used by the Fund in the management of short-term commitments,
other than cash collateral provided in respect of derivatives, securities sold short and securities
borrowing transactions.
Receivables and payables under repurchase agreements and securities lent and borrowed
IAS 39.AG51(a)–(c)
When the Fund purchases a financial asset and simultaneously enters into an agreement to resell the
same or substantially similar asset at a fixed price on a future date (‘reverse repo’), the arrangement
is accounted for as a loan and receivable, recognised in the statement of financial position as
receivables from reverse repurchase agreements, and the underlying asset is not recognised in the
Fund’s financial statements.