Accounting and Legal Implications of the Interposed Unit Trust Instrument

Abstract

The application of a unit trust, within a complex group structure, to transact business and to hold other dependent operating instruments such as subordinate trusts, proprietary companies and investments in joint arrangements, raises issues touching the laws of trusts, income taxation and companies and exposes deficiencies in current accounting theory, practice and financial reporting. The use of unit trusts has off‐balance sheet effects as both the trust itself and all subordinate instruments within its constellation may be effectively partitioned from those group results reported under traditional consolidation principles. The consequences of this partitioning distort the consolidation process and financial statements may then misrepresent a group's financial position. As yet, there is neither legislation nor accounting regulation providing direction in this complex area.