1 See Accounting/Treasurers Committee No. 13-97, Unit Investment Trust Committee No. 31-97, May 16, 1997.
2 See Accounting/Treasurers Committee No. 42-97, Closed-End Investment Company Committee No. 40-97, Small
Funds Committee No. 20-97, and Unit Investment Trust Committee No. 63-97, October 28, 1997.
[9629]
February 2, 1998
TO: ACCOUNTING/TREASURERS COMMITTEE No. 4-98
CLOSED-END INVESTMENT COMPANY COMMITTEE No. 4-98
SMALL FUNDS COMMITTEE No. 2-98
UNIT INVESTMENT TRUST COMMITTEE No. 4-98
RE: UPDATE ON AICPA PROPOSAL LIMITING ORGANIZATION COSTS
_____________________________________________________________________________
As you know, in 1997 the Accounting Standards Executive Committee of the AICPA issued
an exposure draft that would limit the types of pre-operating start-up expenses that can be
capitalized as organization costs.1 The proposed statement of position, Reporting on the Costs of
Start-up Activities, would apply to all entities that prepare financial statements in conformity with
generally accepted accounting principles, including investment companies.
At an October 1997 meeting, AcSEC tentatively decided to require all start-up costs,
including legal costs associated with organization and incorporation of the fund, as well as costs
associated with the drafting of bylaws to be expensed as incurred. However, in response to
comments by the Institute and others, organization costs currently recognized as fund assets by
open-end funds and unit investment trusts were exempted from the mandatory write-off provision
contained in the original proposal. AcSEC did not extend the exemption to closed-end funds since
they are exchange traded.
Subsequent to AcSECs October meeting, the Institute distributed a memorandum
describing AcSECs tentative conclusions and indicating that the exposure draft would be effective
for fiscal years beginning after December 15, 1998.2 Recently AcSEC changed the effective date of
the exposure draft as it relates to open-end funds and unit investment trusts to the later of June 30,
1998 or the date that the exposure draft is issued in final form. We understand that the exposure
draft should be issued in final form during the second quarter of 1998.
Accordingly, in order to capitalize start-up costs as a fund asset, such costs should be
incurred and the fund should publicly offer its shares before June 30. We will keep you informed
of developments.
Gregory M. Smith
Director - Operations/
Compliance & Fund Accounting