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