[10304]
September 21, 1998
TO: ACCOUNTING/TREASURERS COMMITTEE No. 40-98
RE: SURVEY ON MANDATORY DISCOUNT ACCRETION/PREMIUM AMORTIZATION
______________________________________________________________________________
The current version of the AICPA Audit and Accounting Guide Audits of Investment Companies
permits investment companies to select the discount accretion/premium amortization policy which best
suits their investment objectives and their shareholders. Many investment companies conform their
financial accounting policies for fixed-income securities to their tax elections and tax law so as to
minimize book/tax differences.
The AICPA is expected to issue for public comment a revised Audit Guide in the near future.
The revised Audit Guide will require accretion of discounts and amortization of premiums on fixed-
income securities for financial accounting purposes. This proposed change in accounting policy may
cause net investment income for financial accounting purposes to differ from net investment income for
tax purposes.
The Institute plans to file a comment letter on the revised Audit Guide, including this proposed
change in accounting policy for fixed-income securities. The Institute’s comment letter will argue that
investment companies should have the discretion to choose the accounting policy which best suits their
investment objectives and their shareholders and that any concerns associated with differing accounting
policies between funds or fund complexes are mitigated by the SEC’s standardized yield formula and the
calculation of total return. Further, this proposed change in accounting policy will not affect net assets
or net asset value per share since securities are marked to market daily.
The Accounting Policy Subcommittee has prepared the attached brief survey which collects
information on estimated costs associated with implementing this proposed change in accounting policy.
We plan to use this information to argue that the costs associated with this change in accounting policy
outweigh any perceived benefits.
Please complete the attached survey by Friday, October 30 and fax it to the undersigned at
202/326-5853. The results will be compiled in aggregate form (i.e., no individual firm’s responses will be released
separately).
Gregory M. Smith
Director - Operations/
Compliance & Fund Accounting
Attachment