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Investment Managers – SEC Proposes Amendments to Update Form 13F for Institutional Investment Managers NEW!

SOP 20-1 – AICPA Issues New Statement of Position 

FASB Accounting Standards Updates - No. 2020-01 —Investments —Equity Securities (Topic 321), Investments —Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) —Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 

Investments—Debt Securities (Topic 320 and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273 

Covered Investment Fund Research Reports 

Investments - Equity Method and Join Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting - FASB ASU 2016-07 

FASB Accounting Standards Update No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323)

Articles

Investment Managers – SEC Proposes Amendments to Update Form 13F for Institutional Investment Managers

The SEC announced that it has proposed to amend Form 13F to update the reporting threshold for institutional investment managers and make other targeted changes. The threshold has not been adjusted since the SEC adopted Form 13F over 40 years ago.

The SEC indicates that “Form 13F was adopted pursuant to a 1975 statutory directive designed to provide the Commission with data from larger managers about their investment activities and holdings, so that their influence and impact could be considered in maintaining fair and orderly securities markets.”

The proposal would raise the reporting threshold to $3.5 billion, reflecting proportionally the same market value of U.S. equities that $100 million represented in 1975, the time of the statutory directive. The new threshold would retain disclosure of over 90% of the dollar value of the holdings data currently reported while eliminating the Form 13F filing requirement and its attendant costs for the nearly 90% of filers that are smaller managers. In addition, since the initial 13F thresholds were established in 1978, the SEC has added other data collection tools, including N-PORT.

The proposal includes an analysis of alternate approaches to adjusting the reporting threshold, including the use of consumer price inflation and stock market returns; the increase in Form 13F filers over the past four decades; and the increase in the overall size of the U.S. equities market over time. Under the proposed amendments, the aggregate value of section 13(f) securities reported by managers would represent approximately 75% of the U.S. equities market as a whole, as compared with 40% in 1981, the earliest year for which Form 13F data is available.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SOP 20-1 – AICPA Issues New Statement of Position

Summary - The AICPA’s Auditing Standards Board (ASB) has issued Statement of Position (SOP) 20-1, Reporting Pursuant to the 2020 Global Investment Performance Standards (AUD sec. 46).

CFA Institute developed the Global Investment Performance Standards (GIPS) standards. The GIPS standards are used to promote fair representation, full disclosure, and greater comparability of investment performance. Compliance with the standards is voluntary. A claim of compliance by investment management firms and asset owners may give current and potential clients, beneficiaries, and oversight boards more confidence in the integrity of the performance presentations and the general practices of a compliant firm or asset owner.

SOP 20-1 includes interpretive guidance for engagements to examine and report on aspects of a firm’s claim of compliance with the 2020 edition of the GIPS. SOP 20-1 provides interpretive guidance as recommended by the AICPA Investment Performance Standards Task Force on applying the Statements of Standards for Attestation Engagements (SSAE) to report in accordance with the GIPS.

SOP 20-1 also provides guidance on engagements to examine and report on any of the firm’s composites or pooled funds and their associated GIPS reports. This is a performance examination.

SOP 20-1 includes an overview of the GIPS standards as well as the detailed standards. It also includes a number of exhibits and illustrative reports for use by practitioners, including:

  • Sample engagement letter: verification and performance examination;
  • Example representation letter;
  • Illustrative attest report: verification; and
  • Illustrative attest reports: verification and performance examination, including example verification and performance examination report, illustrative GIFS composite report, performance examination report with reference to separate verification report, verification and performance examination report on an asset owner total fund, and reporting directly on a subject matter.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Accounting Standards Updates - No. 2020-01 —Investments —Equity Securities (Topic 321), Investments —Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) —Clarifying the Interactions between Topic 321, Topic 323, and Topic 815

Summary - The FASB issued Accounting Standards Update (ASU) No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force). ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives. The ASU is based on a consensus of the FASB’s Emerging Issues Task Force (EITF).

In 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which added Topic 321, Investments—Equity Securities, and made targeted improvements to address certain aspects of accounting for financial instruments.

Among other changes, the ASU provided a company with the ability to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs (the measurement alternative). Stakeholders asked the FASB to clarify how this guidance should interact with equity method investments.

The new ASU clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

The changes in ASU No. 2016-01 also prompted stakeholders to ask whether certain forward contracts and purchased options should be accounted for in accordance with Topic 321, Topic 323, or Topic 815, Derivatives and Hedging.

The new ASU clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.

The ASU is expected to reduce diversity in practice and increase comparability of the accounting for these interactions.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Investments—Debt Securities (Topic 320 and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273

Summary - These amendments supersede previous SEC guidance in the Codification in SAB Topic 5.M, Other-Than-Temporary Impairment of Certain Investments in Equity Securities and special balance sheet requirements in Regulation S-X Rule 3A-05 for Public Utility Holding Companies. 

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© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Covered Investment Fund Research Reports

Summary - The SEC has issued for public comment a proposed rule, Covered Investment Fund Research Reports. If adopted as proposed, the rules would promote research on mutual funds, exchange traded funds, registered closed-end funds, business development companies, and similar covered investment funds. According to the SEC, the proposal would reduce obstacles to providing research on investment funds by harmonizing the treatment of such research with research on other public entities.

If adopted, the proposal would generally establish a safe harbor for a broker or dealer to publish or distribute research reports on investment funds under certain conditions. This proposed safe harbor is similar to a regulatory safe harbor that currently exists for research reports about other public entities.

The SEC took this action in furtherance of the mandate of the Fair Access to Investment Research Act of 2017 (the Act). The Act requires the SEC to propose and adopt rule amendments that would extend the current safe harbor available under Rule 139 to a “covered investment fund research report.” Under the Act, a covered investment fund research report is generally a research report published or distributed by a broker-dealer about a covered investment fund or any of the covered investment fund’s securities.

Comments are due 30 days after publication in the Federal Register.

For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Investments - Equity Method and Join Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting - FASB ASU 2016-07

Summary The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.
 
The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.

Effective - The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early Adoption is permitted.
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© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Accounting Standards Update No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323)

Summary -  The FASB has issued Accounting Standards Update (ASU) No. 2016-07,
The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence.

The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.

The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.

The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted.

For more information, click here.

© 2016 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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