Investment Companies- AICPA Audit and Accounting Guide

This Audit and Accounting Guide provides the latest information on accounting and auditing issues affecting investment companies. Updated with conforming changes as of May 1, 2008, it includes guidance in planning and performing audits under the risk assessment standards (SAS Nos. 104-111). This edition of the guide has also been conformed to reflect the Defining Professional Requirements standards (SAS No. 102 and SSAE No. 13).

The guide summarizes applicable requirements and practices, and delivers "how-to" advice for handling audit and accounting issues common to investment companies. It includes accounting requirements for investment companies and a discussion of the relevant financial statement considerations for the investment industry, for example the N-SAR letter. Included in the appendices is the Worksheet for Diversified Management Investment Companies (as defined in Section 59(b)(1) of the Investment Companies Act of 1940) and illustrative financial statements presenting tax free business combinations of investment companies. The guide covers the following new accounting pronouncements:

• FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115
• FASB Statement No. 157, Fair Value Measurements
• An introduction to the newly issued FASB Statement Nos. 160, Noncontrolling Interests in Consolidated Financial Statements- an amendment to ARB No. 51, and FASB Statement No. 141(r), Business Combinations.

For a topical listing of subject matter by chapter, click on the Table of Contents tab.

Purpose and Applicability

This AICPA Audit and Accounting Guide has been prepared to assist investment companies in preparing financial statements in conformity with generally accepted accounting principles (GAAP) and to assist independent auditors1 in auditing and reporting on those financial statements.

This guide describes operating conditions and auditing procedures unique to the investment company industry and illustrates form and content of investment company financial statements and related disclosures. Chapter 1 discusses the kinds of companies considered to be investment companies to which the provisions of this guide apply.

Because many investment companies are subject to regulation under the Investment Company Act of 1940, rules under that act are discussed extensively in this guide. However, the rules, regulations, practices, and procedures of the investment company industry have changed frequently and extensively in recent years. The independent auditor should keep abreast of those changes as they occur.

Introduction

This guide has been written with the assumption that readers are proficient in accounting and auditing in general but not necessarily familiar with the investment company industry. Accordingly, the guide includes extensive investment company industry background and explanatory material.

Chapter 1 provides background information and terminology that is intended to help the reader better understand the industry.

Chapters 2 – 4 and chapter 8 focus on the major financial statement components that have unique accounting and auditing requirements for investment companies.

Chapter 5 focuses on unique accounting, operational, and auditing aspects of complex capital structures of investment companies, including multiple-class funds, master-feeder funds, and funds of funds. Illustrative financial statements are presented for multiple-class funds, master funds, feeder funds, and funds of funds.

Chapter 6 focuses on 2 distinct aspects of taxes for investment companies: financial statements and other matters, and taxation of regulated investment companies.

Chapter 7 focuses on financial statement presentation and disclosure requirements of investment companies. Additional disclosures required by the Securities and Exchange Commission (SEC) for registered investment companies and GAAP disclosure requirements are identified. Illustrative financial statements of a typical open-end management investment company are presented.

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