IFRS 15 for investment management companies

from KPMG ... The new revenue recognition standard – IFRS 15 – may change the way investment managers account for non-refundable up-front fees and variable fees. It also introduces changes for capitalising the costs of obtaining an investment management contract.

IFRS 15 might affect investment managers in the following areas.

Investment managers often receive a non-refundable up-front fee for administrative set-up activities at or near inception of an investment management contract. Under the new standard, the timing of revenue recognition for these fees may change. This is because administrative set-up activities do not result in the transfer of a promised good or service to the customer. 

Investment management contracts typically include some variable consideration – e.g. a management fee based on net asset value at the end of each quarter. The new standard no longer allows variable consideration to be measured at fair value and an investment manager will need to estimate it using either an expected value or most likely amount method. Under both methods, variable consideration in investment contracts may be constrained but not precluded.

Some costs to obtain a contract that were capitalised previously may be expensed as incurred under the new standard, and vice versa. This is because there is more detailed guidance on identifying the incremental costs that are to be capitalised under the new standard.

In addition, investment management companies are subject to extensive new disclosure requirements.

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