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Journal entry — Investment companies — FASB votes to issue exposure draft on expanding investment company disclosures

Published on: Oct 24, 2013

At its meeting yesterday, the FASB voted to proceed with issuing an exposure draft that, if adopted, would require an investment company to provide in the notes to its interim and annual financial statements additional disclosures related to its investment in another investment company. The disclosures would be required when the investment in the other investment company represents at least 5 percent of the reporting investment company’s net assets. The proposal would limit the disclosure requirements to the first level of an investment company’s investments (i.e., the disclosures would not be required for the investments of an investment company’s investee fund). However, the proposal would include anti-abuse language requiring disclosure beyond the first level of investments if the reporting investment company created additional levels in an effort to circumvent the proposal’s provisions.

Under the proposal, an investment company would disclose its share of the dollar amounts of management fees and incentive fees paid by the investee fund and its share of income or loss from its investment in the investee fund. In addition, if the investment company owns more than 20 percent of the investee fund, it would need to disclose whether it owns between 20 and 50 percent of the fund or more than 50 percent of the fund.

The proposal would have a comment period extending to 90 days from the proposal’s date of issuance or May 15, 2014, whichever is later. For more information about the proposal, see the project plan on the FASB’s Web site.

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