ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has exempted mutual funds from International Financial Reporting Standards-10 (IFRS-10).

The requirements of consolidation under section 237 of the 1984 Companies Ordinance and IFRS-10 will not apply to investment by companies in mutual funds established under trust structure, the SECP said in a statement on Friday.

IFRS-10 deals with the preparation of consolidated financial statements of holding companies and subsidiaries.

While the scope of definition of subsidiary and control given in the IFRS-10 was broader in nature, “the financial sector, particularly asset management companies, was facing issues in consolidation of financial statements”, the SECP said.

Asset management companies earlier approached the regulator that applicability of broader definition of IFRS-10 to mutual funds will lead to risk of distortion and volatility in the financial statement of the asset management companies and their parent companies.

The SECP has noted that there were several other issues related to applicability of IFRS-10 in preparing consolidated financial statements for asset management companies.

Consolidating the mutual funds under their management could hinder user’s ability to assess their fair and true position.

The State Bank also argued that the SECP should further analyse the applicability of the standards as it has an impact on banks and their subsidiaries.

The SECP has also said that the section 237 will remain applicable to the holding company mainly related to its asset management company, which is its subsidiary under the said section.

“But the section of 237 will not be applicable to the ‘trust’ or ‘fund’ as it does not fall within the meaning of subsidiary,” said an official of the SECP.

Published in Dawn, January 30th, 2016