Collective Investment Scheme is a legal vehicles for investment and allows fund managers to pull assets in smaller units and invest such in diverse asset classes.
However, Fund Managers of Collective Investment Schemes are required to comply with the provisions of the new Rules and file evidence of compliance on or before September 30 2020;
The application of the new total expense ratio and incentive fee computation took effect from July 2020;
According to SEC, Incentive fees should not be factored into total expense ratio computation and shall be assessable and payable on an annual basis;
The apex regulator also said that The Fund Managers Association of Nigeria (FMAN) shall submit acceptable benchmarks for Money Market Funds, Balanced Funds and Ethical Funds at the beginning of each year commencing Q3. 2020;
COVID 19 guidelines by SEC
As part of the efforts to ensure safety of capital market stakeholders, the Security and Exchange Commission (SEC) issued guidelines to the capital market operators following the outbreak of Corona Virus globally.
The safety measures include measures :
• All public companies are required to continue to make material disclosures to investors on the impact of COVID-19 pandemic on their business operations.
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• They should also disclose the trend and outlook for the company, and updates on the implementation of business continuity plans. Their disclosures should be published on their websites and other relevant media.
• All public companies who plan to conduct their Annual General Meetings (AGMS) are required to ensure that the conduct of the meetings complies with the provisions of the Companies and Allied Matters Act, the Investments and Securities Act, the SEC Rules and Regulations, relevant government and health circulars and guidelines issued in this regard.
• Debt issuers are also expected to continue to engage Trustees and ensure that relevant disclosures are provided. Trustees are required to provide updates to the commission accordingly.
• All CMOS are to continue with the monitoring of the real and potential risks that COVID-19 may have on their business operations and the discharge of services to investors and clients.
• In compliance with the Federal Government’s directive on the restriction of movement in Lagos, Ogun, and Abuja, the commission has activated its business continuity process. Consequently, the staff of the commission is working remotely. All its electronic channels will remain open to provide the necessary support to capital market stakeholders.
The US SEC made available issues companies should consider with respect to business and market disruptions related to COVID-19. This was made with regards to its Corporate Finance Division requesthe
Division monitors how companies are disclosing the effects and risks of COVID-19 on their businesses, financial condition, and results of operations and is supplementing CF Disclosure Guidance Topic No. 9 with guidance regarding additional disclosure considerations. It encourages companies to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management and to proactively revise and update disclosures as facts and circumstances change. These disclosures which are not legal in nature are expected to enable an investor to understand how management and the Board of Directors are analyzing the current and expected impact of COVID-19 on the company’s operations and financial condition, including liquidity and capital resources.
Companies are making a diverse range of operational adjustments in response to the effects of COVID-19. These adjustments include a transition to telework; supply chain and distribution adjustments; and suspending or modifying certain operations to comply with health and safety guidelines to protect employees, contractors, and customers, including in connection with a transition back to the workplace. These are adjustments that may have an effect on a company that would be material to an investment or voting decision, and affected companies should carefully consider their obligations to disclose this information to investors. Companies also are undertaking a diverse and sometimes complex range of financing activities in response to the effects of COVID-19 on their businesses and markets. These activities may involve obtaining and utilizing credit facilities, accessing public and private markets, implementing supplier finance programs, and negotiating new or modified customer payment terms. These funding sources may include novel terms and structures. It is important that companies provide robust and transparent disclosures about how they are dealing with short- and long-term liquidity and funding risks in the current economic environment, particularly to the extent efforts present new risks or uncertainties to their businesses. While we have observed companies making some of these disclosures in their earnings releases, we encourage companies to evaluate whether any of the information, in light of its potential materiality, should also be included in MD&A.
Considerations
As companies analyze their specific facts and circumstances and consider their disclosure obligations, the division encourage them to consider a broad range of questions. These include:
• What are the material operational challenges that management and the Board of Directors are monitoring and evaluating? How and to what extent have you altered your operations, such as implementing health and safety policies for employees, contractors, and customers, to deal with these challenges, including challenges related to employees returning to the workplace? How are the changes impacting or reasonably likely to impact your financial condition and short- and long-term liquidity?
• How is your overall liquidity position and outlook evolving? To the extent COVID-19 is adversely impacting your revenues, consider whether such impacts are material to your sources and uses of funds, as well as the materiality of any assumptions you make about the magnitude and duration of COVID-19’S impact on your revenues. Are any decreases in cash flow from operations having a material impact on your liquidity position and outlook?
• Have you accessed revolving lines of credit or raised capital in the public or private markets to address your liquidity needs? Are your disclosures regarding these actions and any unused liquidity sources providing investors with a complete discussion of your financial condition and liquidity?
• Have COVID-19 related impacts affected your ability to access your traditional funding sources on the same or reasonably similar terms as were available to you in recent periods? Have you provided additional collateral, guarantees, or equity to obtain funding? Have there been material changes in your cost of capital? How has a change, or a potential change, to your credit rating impacted your ability to access funding? Do your financing arrangements contain terms that limit your ability to obtain additional funding? If so, is the uncertainty of additional funding reasonably likely to result in your liquidity decreasing in a way that would result in you being unable to maintain current operations?
• Are you at material risk of not meeting covenants in your credit and other agreements?
If you include metrics, such as cash burn rate or daily cash use, in your disclosures, are you providing a clear definition of the metric and explaining how management uses the metric in managing or monitoring liquidity? Are there estimates or assumptions underlying such metrics the disclosure of which is necessary for the metric not to be misleading?
• Have you reduced your capital expenditures and if so, how? Have you reduced or suspended share repurchase programs or dividend payments? Have you ceased any material business operations or disposed of a material asset or line of business? Have you materially reduced or increased your human capital resource expenditures? Are any of these measures temporary in nature, and if so, how long do you expect to maintain them? What factors will you consider in deciding to extend or curtail these measures? What is the short- and long-term impact of these reductions on your ability to generate revenues and meet existing and future financial obligations?
• Are you able to timely service your debt and other obligations? Have you taken advantage of available payment deferrals, forbearance periods, or other concessions? What are those concessions and how long will they last? Do you foresee any liquidity challenges once those accommodations end?
• Have you altered terms with your customers, such as extended payment terms or refund periods, and if so, how have those actions materially affected your financial condition or liquidity? Did you provide concessions or modify terms of arrangements as a landlord or lender that will have a material impact? Have you modified other contractual arrangements in response to COVID-19 in such a way that the revised terms may materially impact your financial condition, liquidity, and capital resources?
• Are you relying on supplier finance programs, otherwise referred to as supply chain financing, structured trade payables, reverse factoring, or vendor financing, to manage your cash flow? Have these arrangements had a material impact on your balance sheet, statement of cash flows, or short- and long-term liquidity and if so, how? What are the material terms of the arrangements? Did you or any of your subsidiaries provide guarantees related to these programs? Do you face a material risk if a party to the arrangement terminates it? What amounts payable at the end of the period relate to these arrangements, and what portion of these amounts has an intermediary already settled for you?
• Have you assessed the impact material events that occurred after the end of the reporting period, but before the financial statements were issued, have had or are reasonably likely to have on your liquidity and capital resources and considered whether disclosure of subsequent events in the financial statements and known trends or uncertainties in MD&A is required?
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) [4]
The CARES Act includes financial assistance for companies in the form of loans and tax relief in the form of deferred or reduced payments and potential refunds.[6] Companies receiving federal assistance should consider the short- and long-term impact of that assistance on their financial condition, results of operations, liquidity, and capital resources, as well as the related disclosures and critical accounting estimates and assumptions.[ Questions to consider include:]
How does a loan impact your financial condition, liquidity and capital resources? What are the material terms and conditions of any assistance you received, and do you anticipate being able to comply with them? Do those terms and conditions limit your ability to seek other sources of financing or affect your cost of capital? Do you reasonably expect restrictions, such as maintaining certain employment levels, to have a material impact on your revenues or income from continuing operations or to cause a material change in the relationship between costs and revenues? Once any such restrictions lapse, do you expect to change your operations in a material way?
Are you taking advantage of any recent tax relief, and if so, how does that relief impact your short- and long-term liquidity? Do you expect a material tax refund for prior periods?
Does the assistance involve new material accounting estimates or judgments that should be disclosed or materially change a prior critical accounting estimate? What accounting estimates were made, such as the probability a loan will be forgiven, and what uncertainties are involved in applying the related accounting guidance
COVID-19: US SEC discloses considerations regarding operations, liquidity, capital resources
Assessment of the impact of COVID-19 operations, liquidity, and capital resources
Company’s ability to continue as a going concern
Management should consider whether conditions and events, taken as a whole, raise substantial doubt about the company’s ability to meet its obligations as they become due within one year after the issuance of the financial statements.[10] Where there is substantial doubt about a company’s ability to continue as a going concern or the substantial doubt is alleviated by management’s plans, management should provide the appropriate respective disclosures in the financial statements[11] and consider the following questions regarding the MD&A disclosure:
• Are there conditions and events that give rise to the substantial doubt about the company’s ability to continue as a going concern? For example, have you defaulted on outstanding obligations? Have you faced labor challenges or a work stoppage?
• What are your plans to address these challenges? Have you implemented any portion of those plans?
