Trust units classification clarification

Keywords: Mazars, Thailand, Accounting, REIT, Property Funds, Infrastructure Funds, FVTPL, FVOCI, Federation of Accounting Professions Committee

19 June 2020

Real Estate Investment Trust (REIT)

An REIT is a type of trust where a trustee is considered the true owner on behalf of the beneficiary and which does not have status as a legal entity. The trust settlor will eventually become the REIT Manager, who will offer trust units to the public. Once capital from the sale of trust units is received, the REIT Manager will entrust the funds to the REIT’s designated trustee in order to establish the REIT. The trust deed will assign the REIT Manager to manage the REIT and the trustee to supervise the performance of the REIT Manager and administer the REIT in the best interests of the beneficiary.

Property Funds

Property funds are investments in commercial property, such as offices, factories, warehouses, and retail space. A property fund is an innovative instrument to help the private sector raise capital and is a driving force behind economic growth.

Infrastructure Funds

Infrastructure funds are financial instruments for raising capital in order to finance infrastructure projects across Thailand that are large and require a tremendous amount of capital. Thus, the purpose of an infrastructure fund is to alleviate the government’s budget and the country’s public debt.

A new interpretation of the classification of these funds

On 11 May 2020, the Federation of Accounting Professions Committee announced that the Committee considered the characteristics, stipulations, conditions, and objectives of setting up such funds in Thailand noted above, and concluded that investments in trust units in such funds are an investment in equity securities. 

The Committee understands that financial statements for the first quarter of 2020 have already been prepared and submitted to the Stock Exchange of Thailand. Some entities have recognized and classified the trust units in such funds as debt securities and determined a fair value for them and measured them at fair value through profit and loss (FVTPL). Therefore, this new interpretation of how such units should be classified may affect the preparation of financial statements for the second quarter of 2020.   

Entities must prepare their financial statements and classify trust units in such funds as an investment in equity securities instead of debt securities in the second quarter of 2020.  As a result, companies have two options for measuring trust units in such funds at initial recognition – either at FVTPL or at fair value through other comprehensive income (FVOCI).  

If entities choose to measure trust units in such funds at FVTPL, the value will be the same as securities debt in the first quarter. Therefore, this will have no effect on preparing financial statements or on recognition in the second quarter. 

If entities choose to measure trust units in such funds at FVOCI, they must revise their first quarter financial statements and measure trust units at FVOCI in the first quarter as well.

For more information (in Thai) on the guidelines, visit the Federation of Accounting Professions Committee website.