The key accounting standards for investment companies under US GAAP are outlined in ASC 946. It provides specific guidance for investment companies on measurement and disclosure of investments, net asset value per share, and financial highlights. The scope includes entities like private equity funds, hedge funds, venture capital funds, mutual funds and ETFs. Key requirements are use of fair value for investment measurement and specific disclosures around investment company status, fair valuation, etc. Proper application of ASC 946 is crucial for investment companies to comply with US GAAP and SEC regulations.
Investment companies scope and exceptions under ASC 946
ASC 946 provides scope and scope exceptions that determine which entities can apply investment company accounting. The general principle is that an investment company carries investments at fair value with changes in fair value reflected in net income. However, equity method accounting may apply in certain cases, such as investments in operating companies that provide services to the investment company.
Fair value measurement mandated for investments
With limited exceptions, ASC 946 requires all investments held by investment companies to be measured at fair value, with changes in fair value reported in earnings. This applies for both debt and equity securities. Equity method accounting is not permitted unless the investee provides services to the investment company.
Specific disclosures and reporting requirements
Investment companies have specific disclosure and reporting requirements under ASC 946, such as disclosing the status as an investment company, fair value measurement, net asset value per share, financial highlights, and realized/unrealized gains/losses. SEC regulations also impose additional reporting for investment companies.
Differences from equity method accounting
The fair value measurement approach represents a key difference from equity method accounting. The latter is generally required when an investor has significant influence over the investee, but ASC 946 prohibits this for investments held by investment companies, unless specific exceptions apply.
Importance of proper application for regulatory compliance
Proper accounting under ASC 946 is essential for investment companies to comply with SEC regulations and avoid increased regulatory scrutiny. Misapplication could lead to restatement and other regulatory actions. External auditors play a key role in ensuring investment company clients apply US GAAP appropriately.
ASC 946 provides tailored accounting guidance for investment companies under US GAAP. Key requirements include use of fair value measurement for investments, specific disclosures, and differences from equity method accounting. Proper application is crucial for investment companies to comply with SEC regulations.