AICPA's FinREC Comments on FASB Exposure Draft on Disclosure Requirements for Investment Companies

March 26, 2015

The Financial Reporting Executive Committee (FinREC) of the American Institute of CPAs (AICPA) has submitted comments on the Financial Accounting Standards Board’s (FASB) proposal regarding investment companies’ disclosures about investments in other investment companies.

In a February 23 letter, FinREC Chairman Jim Dolinar and AICPA Investment Companies Expert Panel Chairman Brent Oswald expressed support for the FASB’s effort to provide consistency and transparency through alignment of disclosure and presentation requirements for investment companies regulated under the Investment Company Act of 1940 (1940 Act) with those investment companies not regulated under the 1940 Act. “The proposed [Accounting Standards Update] will require feeder funds (both regulated and non-regulated) to provide the master fund’s financial statements along with the feeder fund’s financial statements. It will also require all investment companies (regulated and non-regulated) to disclose each investment owned by an individual investee fund that exceeds five percent of the reporting investment company’s net assets at the reporting date,” the letter stated.

Dolinar and Oswald wrote that while FinREC supports the Board’s intent to align disclosure and presentation requirements for regulated and non-regulated investment companies, “we have some concerns regarding operability and auditability of the proposed disclosure and presentation requirements. We recommend that the FASB engage representatives of the AICPA (FinREC, Auditing Standards Board, and the Investment Companies Expert Panel) to discuss audit challenges relating to the proposed presentation requirement before finalizing this project. Additionally, we believe any investment company that invests substantially all of its assets in another investment company should either present the financial statements of the investee fund or provide information concerning the investments and operations of the investee fund.”