Audit and Accounting Guide: Investment Companies

Audit and Accounting Guide: Investment Companies

by AICPA
Released November 2018
Publisher(s): Wiley
ISBN: 9781948306171

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Book description

Whether you are a financial statement preparer or auditor, it is critical to understand the complexities of the specialized accounting and regulatory requirements for investment companies. This 2018 guide provides authoritative how-to accounting and auditing advice, including implementation guidance and illustrative financial statements and disclosures.

This guide is the industry standard resource, supporting practitioners in a constantly changing industry landscape packed with continuous regulatory developments.

Updates include:
  • References to appropriate AICPA Technical Questions and Answers that address when to apply the liquidation basis of accounting.
  • Appendices discussing the new standards for financial instruments, leases and revenue recognition.
  • Appendices discussing common or collective trusts and business development companies.

Table of contents

    1. 1Overview of the Investment Company Industry
      1. Introduction
        1. Guide Application
        2. Investment Companies Defined—Scope of FASB ASC 946
      2. Types of Investment Companies
      3. History
      4. Definition and Classification
      5. Organizations Providing Services to Investment Companies
        1. The Investment Adviser
        2. The Distributor
        3. The Custodian
        4. The Transfer Agent
        5. The Administrator
      6. Regulation
        1. Summary of Relevant SEC Registration and Reporting Forms
      7. Financial Reporting to Shareholders
      8. Accounting Rules and Policies
      9. Effective Date of Transactions
      10. Other Rules and Regulations
        1. Money Market Reform
        2. Other Requirements
        3. Jumpstart Our Business Startups Act (JOBS Act)
        4. Regulatory Changes for Investment Companies That Invest in Commodities
    2. 2Investment Accounts
      1. Investment Objectives and Policies
      2. Operations and Controls
        1. Recordkeeping Requirements
        2. Custody of Securities
        3. Accounting for Segregated Accounts
        4. Routine Investment Procedures
      3. Accounting
        1. Net Asset Value Per Share
        2. Basis of Recording Securities Transactions
        3. Valuing Investments
        4. Fair Value Determination When the Volume or Level of Activity Has Significantly Decreased
        5. Valuation Techniques
        6. Present Value Techniques
        7. The Fair Value Hierarchy
        8. Application of Fair Value Measurements
        9. Offsetting Positions in Market Risks or Counterparty Credit Risk
        10. Investments in Entities That Calculate Net Asset Value Per Share
        11. Money Market Funds
        12. Determining Costs and Realized Gains and Losses
        13. Accounting for Investment Income
        14. Defaulted Debt Securities
        15. Accounting for Expenditures in Support of Defaulted Debt Securities
        16. Lending of Portfolio Securities and Secured Borrowings
        17. Accounting for Derivatives
        18. Accounting for Foreign Investments
    3. 3Financial Instruments
      1. Money Market Investments
      2. Repurchase Agreements
      3. Reverse Repurchase Agreements
      4. U.S. Government Securities (Treasury Bills, Notes, and Bonds)
      5. Municipal Notes and Bonds
      6. Insured Portfolios
      7. To Be Announced Securities
      8. When-Issued Securities
      9. Synthetic Floaters and Inverse Floaters
      10. Mortgage-Backed Securities
      11. Adjustable Rate Mortgages
      12. Collateralized Mortgage Obligations
      13. Real Estate Mortgage Investment Conduits
      14. High-Yield Securities
      15. Payment-in-Kind Bonds
      16. Step Bonds
      17. Put and Call Options
      18. Warrants
      19. Loan Commitments
      20. Standby Commitments
      21. Commodity and Financial Futures Contracts
      22. Forward Contracts
      23. Forward Exchange Contracts
      24. Interest Rate, Currency, Credit, and Equity Swaps and Swaptions
      25. Centrally Cleared Swaps
      26. Structured Notes or Indexed Securities
      27. Short Positions
      28. Mortgage Dollar Rolls
    4. 4Capital Accounts
      1. Operations and Controls
        1. Distributors
        2. Orders to Purchase or Redeem
        3. Cancellation of Orders
        4. Shareholder Transactions
      2. Accounting for Capital Share Transactions and Distributions
        1. Equalization
      3. Auditing Procedures
        1. Principal Audit Objectives
        2. Obtaining an Understanding of the Entity and Its Environment, Including Internal Control
        3. Examination of Transactions and Detail Records
        4. Other Auditing Matters
    5. 5Complex Capital Structures
      1. Operational and Accounting Issues
        1. Multiple-Class Funds
        2. Master-Feeder Funds
        3. Funds of Funds
        4. Other Considerations for Investments in Nonpublicly Traded Investees
      2. Financial Statement Presentation
        1. Multiple-Class Funds
        2. Master-Feeder Funds
        3. Funds of Funds
      3. Audit Considerations
        1. Planning
        2. Control Environment
        3. Investment in Master Fund and Income-Gain Allocations
        4. Other Transactions
        5. Prospectus Restrictions and Compliance
        6. Tax Qualifications and Compliance
        7. Financial Statements
      4. Funds of Funds
        1. Control Environment
    6. 6Taxes
      1. Overview
      2. Financial Statements and Other Matters
        1. Income Tax Expense
        2. Federal Income Tax Provisions Affecting Investment Accounts
        3. Foreign Withholding Taxes
        4. Financial Statement Presentation
        5. Diversification of Assets
      3. RICs
        1. General Discussion of the Taxation of RICs
        2. Taxation of a RIC’s Taxable Income and Net Capital Gains
        3. Taxation of Shareholder Distributions
        4. Excess Reported Amounts
        5. Qualification Tests
        6. Variable Contracts
        7. Distribution Test
        8. Excise Tax on Undistributed Income
        9. Computation of Taxable Income and Gains
        10. Offshore Funds
        11. Small Business Investment Companies
    7. 7Financial Statements of Investment Companies
      1. Comparative Financial Statements
      2. Consolidation
        1. Other Consolidation Considerations
      3. Reporting Financial Position
        1. Reporting of Fully Benefit-Responsive Investment Contracts
        2. Schedule of Investments
        3. Assets
        4. Liabilities
        5. Disclosures Related to Transfers of Financial Assets, Including Repurchase Agreements
        6. Fair Value Disclosures
        7. Fair Value Option
        8. Net Assets
      4. Statement of Operations
        1. Investment Income
        2. Expenses
        3. Net Investment Income
        4. Net Realized Gain or Loss From Investments and Foreign Currency Transactions
        5. Net Increase (Decrease) in Unrealized Appreciation or Depreciation on Investments and Translation of Assets and Liabilities in Foreign Currencies
        6. Net Increase From Payments by Affiliates and Net Gains (Losses) Realized on the Disposal of Investments in Violation of Restrictions
        7. Net Realized and Unrealized Gain or Loss From Investments and Foreign Currency
        8. Net Increase or Decrease in Net Assets From Operations
        9. Reporting of Fully Benefit-Responsive Investment Contracts
      5. Statement of Changes in Net Assets
      6. Subsequent Events
      7. Statement of Cash Flows
      8. Financial Highlights
      9. Other Disclosure Requirements
        1. Fully Benefit-Responsive Investment Contract Disclosures
        2. Offsetting Assets and Liabilities
      10. Interim Financial Statements
        1. Auditing Considerations
      11. Illustrative Financial Statements of Investment Companies
      12. Illustrations of Calculations and Disclosures When Reporting Expense and Net Investment Income Ratios
      13. Illustration of Calculation and Disclosure When Reporting the Internal Rate of Return
      14. Illustration of Calculation and Disclosure When Reporting the Total Return Ratio
      15. Illustration of a Condensed Schedule of Investments
      16. Illustrations of Nonregistered Investment Partnerships Schedule of Investments
      17. Presentation of Fully Benefit-Responsive Investment Contracts
      18. Illustration of Deferred Fees
      19. Illustration of Reporting Financial Highlights, Net Asset Value Per Share, Shares Outstanding, and Share Transactions When Investors in Unitized Nonregistered Funds Are Issued Individual Classes or Series of Shares
      20. Illustrative Statement of Changes in Net Assets (Changes in Partners’ Capital) of a Nonregistered Investment Partnership That Includes a General Partner and One or More Limited Partners
      21. Illustrative Disclosure for a Registered Fund Issuing Consolidated Financial Statements and Relying on CFTC Letter No. 13-51
    8. 8Other Accounts and Considerations
      1. Investment Advisory (Management) Fee Expense
      2. Expenses
      3. Distribution Expenses
      4. Organization and Offering Costs
      5. Unusual Income Items
      6. Business Combinations
      7. Diversification of Assets
      8. Liquidation Basis of Accounting
        1. When to Apply the Liquidation Basis of Accounting
        2. Recognition and Measurement Provisions
        3. Presentation and Disclosure
    9. 9Unit Investment Trusts
      1. Fixed-Income and Equity UITs
      2. Taxes
      3. Illustrative Financial Statements
    10. 10Variable Contracts—Insurance Entities
      1. Separate Accounts
      2. History
      3. Product Design
      4. Contracts in the Payout (Annuitization) Period
      5. SEC Registration
      6. Auditing Considerations
      7. Taxation of Variable Contracts
      8. Illustrative Financial Statements
    11. 11General Auditing Considerations
      1. Chapter Overview
      2. General Audit Planning Considerations
        1. Audit Risk
        2. Risk Assessment Procedures
        3. Risk Assessment and the Design of Further Audit Procedures
      3. Other General Considerations for Audits of Investment Companies
        1. Internal Control Considerations
        2. Going Concern
        3. Risk Assessment Procedures and Related Activities
        4. Auditor Conclusions
        5. Implications for the Auditor’s Report
        6. Documentation
      4. Auditing Procedures for the Investment Portfolio Accounts
        1. Principal Audit Objectives
        2. Examination of Transactions and Detail Records
      5. Appendix A—Auditor’s Responsibility for Other Information in Documents Containing Audited Financial Statements
      6. Appendix B—Reports on Controls at Outside Service Organizations
      7. Appendix C—Consideration of Fraud in a Financial Statement Audit
    12. 12Independent Auditor’s Reports and Client Representations
      1. Introduction
      2. Forming an Opinion on the Financial Statements
      3. Reports on Financial Statements of Nonregistered Investment Companies
        1. Unmodified Opinion
        2. Modified Opinions
        3. Review Report on Interim Financial Information
      4. Reports on Financial Statements of Registered Investment Companies
        1. Report for a Registered Investment Company That Includes a Summary Schedule of Investments in the Financial Statements Provided to Shareholders
      5. Report on Internal Control Required by the SEC Under Form N-CEN
      6. Report on Examinations of Securities Pursuant to Rules 17f-1 and 17f-2 Under the 1940 Act
        1. Report on Examinations of Securities Pursuant to Rule 206(4)-2 Under the Investment Advisers Act of 1940
      7. Reports on Processing of Transactions by a Transfer Agent
      8. Reporting Pursuant to the Global Investment Performance Standards
      9. Illustrative Representation Letter—XYZ Investment Company
        1. Nonregistered Investment Company Written Representation
        2. Registered Investment Company Written Representation
    1. AOverview of Statements on Quality Control Standards
    2. BCommon or Collective Trusts
    3. CVenture Capital, Business Development Companies, and Small Business Investment Companies
    4. DComputation of Tax Amortization of Original Issue Discount, Market Discount, and Premium
    5. EIllustrative Financial Statement Presentation for Tax-Free Business Combinations of Investment Companies
    6. FIllustrations for Separately Calculating and Disclosing the Foreign Currency Element of Realized and Unrealized Gains and Losses
    7. GReferences to Technical Questions and Answers
    8. HThe New Leases Standard: FASB ASC 842
    9. IThe New Revenue Recognition Standard: FASB ASC 606
    10. JAccounting for Financial Instruments
    11. KAsset Management
    12. LSchedule of Changes Made to the Text From the Previous Edition
  3. Glossary
  4. EULA

Product information

  • Title: Audit and Accounting Guide: Investment Companies
  • Author(s): AICPA
  • Release date: November 2018
  • Publisher(s): Wiley
  • ISBN: 9781948306171