A high-level newsletter to create or enhance awareness of issues impacting private equity and investment funds including hedge funds, mutual funds and other investment entities.

1. Kabani & Company, Inc.
February 15, 2010
Volume 1 Issue 1
Kabani & Company, Inc., the Fastest Growing Accounting Firm in America*
233 S. Wacker Dr. Chicago, IL 60606
Thanks IFRS
Recently, the FASB decided to defer the implementation of
Statement #167 that would have forced many investment advisers
INSIDE THIS ISSUE to consolidate controlled entities starting in 2010. Without this
1 Thanks IFRS reprieve here are just some of the confusing results that could
have occurred:
1 Everyone in the  Hedge fund advisers would present the performance of
Boardroom…NOW! managed funds in their income statement instead of the
2 Accounting Advice for management fee income received from them; and
Investment Fund Attorneys  Private equity fund managers would need to “gross-up the
balance sheet” for debt at their portfolio companies as if
3 Custody Rules for
it were their own.
Investment Advisors
The standard may not have been deferred if International
4 The Purpose of This Financial Reporting Standards (“IFRS”) were consistent with
Month’s Newsletter Please see IFRS on page 2
Everyone in the Boardroom...NOW!
“I hafta consolidate Although the accounting and finance team will surely be affected by
what??!!.” A Chicago private IFRS, it’s going to impact most everyone at an investment advisory firm.
equity firm CFO, January 2010
This includes private equity managers, as well as firms that manage
mutual funds, hedge funds, and basically any other investment company.
At a minimum, the following departments will be impacted:
 Legal & Compliance;
 Information Technology;
 Human Resources;
 Investor & Public Relations;
 Treasury; and
 Tax
Please see Boardroom on page 3

2. Page 2 Kabani & Company, Inc.
Accounting Advice for Fund Attorneys
If you happen to hear someone talking about IFRS, they are
probably an accountant worrying about how they are supposed to
learn one more set of rules in addition to completing their day job
done on time. No, IFRS isn’t effective yet and nobody really knows
when it will be. But as another article in this newsletter suggests,
it isn’t something the accountants are keeping for themselves.
Most everyone should have it on their radar, especially the
attorneys. Why? Let’s take just common examples:
 Under IFRS, shareholder’s equity may be classified as a
liability in certain situations. Why does this matter?
Because most managers are compensated at least partially
based on a percentage of net assets, and unless agreements
are amended their assets may technically be zero under
IFRS; and
 Debt compliance covenants may be automatically breached
when applying IFRS to certain ratio calculations, having the
unintended consequence of rendering the debt current.
Just two simple examples of surface level IFRS issues. But the legal
aspects of IRFS can be huge if you layer on top the HR, compliance,
tax, and other functional matters that will require legal input.
Because of the effect of unidentified situations imposed by IFRS, it
will make sense to get an early start on the identification of issues
that will surely have at least some legal impact. So how do
Please see Advice on page 4
IFRS - from page 1
FASB’s proposed rule. However, making IFRS and GAAP similar was
one of the big reasons for the deferral. The convergence of US and
global reporting standards has often been viewed as just one more
project to put on the pile, with very few tangible benefits to those
responsible for its implementation. While this is just one
unintended benefit, we believe many constructive outcomes will
occur as the US evolves toward the inevitable: a single
international standard. IFRS has fewer rules and exceptions, and its
relative simplicity allows more professional judgment to be
exercised. But that’s just the start. The key to unlocking the value
provided by IFRS implementation is to start early, start from
scratch, and view this as having a comprehensive affect on your
organization and those peripheral to the operations of an
investment firm.

3. Kabani & Company, Inc. Page 3
Custody Rules for Investment Advisors
This message serves as a quick reminder that the new rules
prescribed by Rule 206(4)-2 (the “Custody Rule”) under the
Investment Advisers Act of 1940 (the “Advisers Act”) go into effect
in March 2010. If an adviser maintains custody over investor assets,
they will be required to obtain the following from an auditor
registered with the PCAOB:
 A surprise examination of the assets in custody; and
 An internal control report related to the controls over asset
custody. The best way to understand this requirement is to
think of it as the application of Sarbanes Oxley requirements
to custody operations. Companies will be required to
document and test their controls, then obtain an auditors
opinion that these same controls are designed properly and .
operating effectively.
While these another components of the Custody Rule require legal
advice to determine applicability, this is an important step in
reaction to some of the high-profile cases publicized in the
industry.
Boardroom from page 1
Finally, in addition to considering the tangential impacts extending
beyond corporate boundaries to service providers and other
mandatory partners (fund administrators, valuation firms, prime
brokers, etc.), companies must extend their readiness efforts to
Audit Committees and Boards of Directors of their Investment
Funds.
“How can my NAV
You’ve heard of the ripple effect. It was pervasively used as a way possibly be reduced
to describe how Sarbanes-Oxley would impact the entire under IFRS?” A Chicago
organization. Sure everyone complained about it, but was everyone mutual fund manager,
really affected much? Although investment companies were February 2010
insulated from its most onerous requirements, they won’t be able
to escape this time. But don’t look at it as a punishment, view it as
a benefit. Just like most companies that will admit to being better
after Sarbanes implementation, this too will add value to your firm.

4. Page 4 Kabani & Company, Inc.
Advice from page 2
attorneys determine what the impacts will be?
The first step will be to obtain a high level
understanding of IFRS by reading the available
materials provided in cyberspace, or by sitting
down with an accountant for a formal training
session. Regardless of how, it might make
sense to do this sooner rather than later.
The Purpose of this Month’s Newsletter
The purpose of this newsletter is to provide closer to the short end of this time
our clients and friends with a high level spectrum.
awareness or reminder of some very So it’s time to start thinking about IFRS, at
important issues impacting their business. a minimum, and we recommend
In this issue, we focus on the Investment developing a plan starting now. This plan
Management Industry because of the many may be nothing more than pulling your
issues involving various parts of their team together and discussing how it may
organizations. impact your firm, getting some high level
awareness training, or developing an
One issue is the emergence of the implementation timeline with defined
International Financial Reporting Standards, roles and responsibilities.
or “IFRS”. Even though reporting deadlines
for IFRS haven’t been prescribed in the At the risk of repeating, it’s going to be
United States, most industry professionals best to start early so that you may realize
will tell you that it will happen. Whether it the full benefits it provides.
will be required in 2 years or 10 years is Feel free to contact us anytime to discuss
currently unknown, but we believe it will be these or any other matters. We can help
you find the right answer for your team
whether it’s an accounting or tax issue, or
something related to HR, staffing,
consulting or valuation matters. We have
the experience and resources to get you an
answer. Fast.
Kabani & Company, Inc.
Greg Buczynski, Partner
233 S Wacker Drive
Suite 7800
Chicago, IL 60606
www.kabanico.com
Phone:
(312) 752-5426
E-mail: *Public Accounting Report
greg@kabanico.com