Audit and Accounting Guide Investment Companies July 1, 2018 23574-349 Copyright © 2018 by American Institute of Certified Public Accountants All rights reserved For information about the procedure for requesting permission to make copies of any part of this work, please email copyright@aicpa.org with your request Otherwise, requests should be written and mailed to Permissions Department, 220 Leigh Farm Road, Durham, NC 27707-8110 AAP ISBN 978-1-94830-617-1 QSJOU *4#/- F1VC iii Preface (Updated as of July 1, 2018) This guide was prepared by the Investment Companies Special Committee About AICPA Audit and Accounting Guides This AICPA Audit and Accounting Guide has been developed by the AICPA Investment Companies Guide Task Force to assist management in the preparation of their financial statements in conformity with U.S generally accepted accounting principles (GAAP) and to assist practitioners in performing and reporting on their audit and attestation engagements This guide describes operating conditions and auditing procedures unique to the investment company industry and illustrates the form and content of investment company financial statements and related disclosures Because many investment companies are subject to regulation under the Investment Company Act of 1940, rules under that act are discussed extensively in this guide However, the rules, regulations, practices, and procedures of the investment company industry have changed frequently and extensively in recent years The independent practitioner should keep abreast of those changes as they occur An AICPA Guide containing auditing guidance related to generally accepted auditing standards (GAAS) is recognized as an interpretive publication as defined in AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards.1 Interpretive publications are recommendations on the application of GAAS in specific circumstances, including engagements for entities in specialized industries Interpretive publications are issued under the authority of the AICPA Auditing Standards Board (ASB) after all ASB members have been provided an opportunity to consider and comment on whether the proposed interpretive publication is consistent with GAAS The members of the ASB have found the auditing guidance in this guide to be consistent with existing GAAS Although interpretive publications are not auditing standards, AU-C section 200 requires the auditor to consider applicable interpretive publications in planning and performing the audit because interpretive publications are relevant to the proper application of GAAS in specific circumstances If the auditor does not apply the auditing guidance in an applicable interpretive publication, the auditor should document how the requirements of GAAS were complied with in the circumstances addressed by such auditing guidance The ASB is the designated senior committee of the AICPA authorized to speak for the AICPA on all matters related to auditing Conforming changes made to All AU-C sections can be found in AICPA Professional Standards ©2018, AICPA AAG-INV iv the auditing guidance contained in this guide are approved by the ASB Chair (or his or her designee) and the Director of the AICPA Audit and Attest Standards Staff Updates made to the auditing guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the Statements on Auditing Standards (SASs) Any auditing guidance in a guide appendix or exhibit (whether a chapter or back matter appendix, or an exhibit), although not authoritative, is considered an "other auditing publication." In applying such guidance, the auditor should, exercising professional judgment, assess the relevance and appropriateness of such guidance to the circumstances of the audit Although the auditor determines the relevance of other auditing guidance, auditing guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff and the auditor may presume that it is appropriate An AICPA Guide containing attestation guidance is recognized as an interpretative publication as defined in AT-C section 105, Concepts Common to All Attestation Engagements.2 Interpretative publications are recommendations on the application of Statements on Standards for Attestation Engagements (SSAEs) in specific circumstances, including engagements for entities in specialized industries Interpretative publications are issued under the authority of the ASB The members of the ASB have found the attestation guidance in this guide to be consistent with existing SSAEs A practitioner should be aware of and consider the guidance in this AICPA guide applicable to his or her attestation engagement If the practitioner does not apply the attestation guidance included in an applicable interpretive publication, the practitioner should document how the requirements of the SSAE were complied with in the circumstances addressed by such attestation guidance Any attestation guidance in a guide appendix or exhibit (whether a chapter or back matter appendix or an exhibit), although not authoritative, is considered an "other attestation publication." In applying such guidance, the practitioner should, exercising professional judgment, assess the relevance and appropriateness of such guidance to the circumstances of the engagement Although the practitioner determines the relevance of other attestation guidance, such guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff and the practitioner may presume that it is appropriate The ASB is the designated senior committee of the AICPA authorized to speak for the AICPA on all matters related to attestation Conforming changes made to the attestation guidance contained in this guide are approved by the ASB Chair (or his or her designee) and the Director of the AICPA Audit and Attest Standards Staff Updates made to the attestation guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the SSAEs AICPA Guides may include certain content presented as "supplement," "appendix," or "exhibit." A supplement is a reproduction, in whole or in part, of authoritative guidance originally issued by a standard setting body (including regulatory bodies) and applicable to entities or engagements within the All AT-C sections can be found in AICPA Professional Standards AAG-INV ©2018, AICPA v purview of that standard setter, independent of the authoritative status of the applicable AICPA Guide Both appendixes and exhibits are included for informational purposes and have no authoritative status The Financial Reporting Executive Committee (FinREC) is the designated senior committee of the AICPA authorized to speak for the AICPA in the areas of financial accounting and reporting Conforming changes made to the financial accounting and reporting guidance contained in this guide are approved by the FinREC Chair (or his or her designee) Updates made to the financial accounting and reporting guidance in this guide exceeding that of conforming changes are approved by the affirmative vote of at least two-thirds of the members of FinREC This guide does the following: r r r r Identifies certain requirements set forth in the FASB Accounting Standards Codification® (ASC) Describes FinREC's understanding of prevalent or sole industry practice concerning certain issues In addition, this guide may indicate that FinREC expresses a preference for the prevalent or sole industry practice, or it may indicate that FinREC expresses a preference for another practice that is not the prevalent or sole industry practice; alternatively, FinREC may express no view on the matter Identifies certain other, but not necessarily all, industry practices concerning certain accounting issues without expressing FinREC's views on them Provides guidance that has been supported by FinREC on the accounting, reporting, or disclosure treatment of transactions or events that are not set forth in FASB ASC Accounting guidance for nongovernmental entities included in an AICPA Guide is a source of nonauthoritative accounting guidance As discussed later in this preface, FASB ASC is the authoritative source of U.S accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the SEC Accounting guidance for governmental entities included in an AICPA Guide, and cleared by GASB, is a source of authoritative GAAP described in category B of the hierarchy of GAAP for state and local governmental entities, as defined in GASB Statement No 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments AICPA members should be prepared to justify departures from GAAP, as discussed in the "Accounting Principles Rule" (ET sec 1.320.001).3 AICPA Audit and Accounting Guides also include guidance from AICPA Technical Questions and Answers These questions and answers are not sources of established authoritative accounting principles as described in FASB ASC, the authoritative source of GAAP for nongovernmental entities This material is based on selected practice matters identified by the staff of the AICPA's Technical Hotline and various other bodies within the AICPA and has not been approved, disapproved, or otherwise acted upon by any senior technical committee of the AICPA All ET sections can be found in AICPA Professional Standards ©2018, AICPA AAG-INV vi Purpose and Applicability Limitations This guide does not discuss the application of all GAAP, GAAS, and PCAOB standards that are relevant to the preparation and audit of financial statements of investment companies This guide is directed primarily to those aspects of the preparation and audit of financial statements that are unique to investment companies or those aspects that are considered particularly significant to them Recognition AICPA Senior Committees Auditing Standards Board Jay Brodish, Member Mike Santay, Chair Financial Reporting Executive Committee Jim Dolinar, Chair The AICPA gratefully acknowledges those members of the AICPA Investment Companies Expert Panel (2017–2018) who reviewed or otherwise contributed to the development of this edition of the guide: Mike Barkman, Chair Christopher Brabham Craig Brown James V Carey Rajan Chari Toai P Chin Martin Davidson Nir Messafi Brent Oswald Charles Pulsfort Jason Andrew Sibley Robert Sidoti Dale K Thompson In addition to the senior committee members and 2017–2018 expert panel members listed previously, the AICPA gratefully acknowledges those who reviewed and otherwise contributed to the development of this guide: Eric D Alemian, Elizabeth Bayston, Christina Catalina, Pat Crecco, Alexis Cunningham, Marne L Doman, Nicholas D'Onfro, Jaime Eichen, Kathleen Healy, Adam Hallemeyer, David Haller, Timothy Jinks, Chris May, Peggy McCaffrey, Rachna Mehta, Ari Samuel, and Rich Sumida AICPA Staff Robert Booth Technical Manager Accounting and Auditing Content Development Teresa Brenan Technical Manager Accounting and Auditing Content Development AAG-INV ©2018, AICPA vii Irina Portnoy Senior Manager Accounting Standards and Staff Liaison AICPA Investment Companies Expert Panel Guidance Considered in This Edition This edition of the guide has been modified by the AICPA staff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued, and other revisions as deemed appropriate Relevant guidance issued through July 1, 2018, has been considered in the development of this edition of the guide However, this guide does not include all audit, accounting, reporting, and other requirements applicable to an entity or a particular engagement This guide is intended to be used in conjunction with all applicable sources of authoritative guidance Relevant guidance that is issued and effective on or before July 1, 2018, is incorporated directly in the text of this guide Relevante guidance issued but not yet effective as of July 1, 2018, but becoming effective on or before December 31, 2018, is also presented directly in the text of the guide, but shaded gray and accompanied by a footnote indicating the effective date of the new guidance The distinct presentation of this content is intended to aid the reader in differentiating content that may not be effective for the reader's purposes (as part of the guide's "dual guidance" treatment of applicable new guidance) Relevant guidance issued but not yet effective as of the date of the guide and not becoming effective until after December 31, 2018, is referenced in a "guidance update" box; that is, a gray shaded box that contains summary information on the guidance issued but not yet effective In updating this guide, all guidance issued up to and including the following was considered, but not necessarily incorporated, as determined based on applicability: r r r r r FASB Accounting Standards Update (ASU) No 2018-08, Not-ForProfit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made SAS No 133, Auditor Involvement With Exempt Offering Documents (AU-C sec 945) SSAE No 18, Attestation Standards: Clarification and Recodification Interpretation No 4, "Performing and Reporting on an Attestation Engagement Under Two Sets of Attestation Standards," (AT-C sec 9105 par .31–.35), of AT-C section 105 PCAOB Release No 2017-001, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion Users of this guide should consider guidance issued subsequent to those items listed previously to determine their effect, if any, on entities and engagements covered by this guide In determining the applicability of recently issued guidance, its effective date should also be considered ©2018, AICPA AAG-INV viii The changes made to this edition of the guide are identified in the Schedule of Changes appendix The changes not include all those that might be considered necessary if the guide were subjected to a comprehensive review and revision PCAOB quoted content is from PCAOB Auditing Standards and PCAOB Staff Audit Practice Alerts, ©2017, Public Company Accounting Oversight Board All rights reserved Used by permission FASB standards quoted are from the FASB Accounting Standards Codification ©2018, Financial Accounting Foundation All rights reserved Used by permission FASB ASC Pending Content Presentation of Pending Content in FASB ASC Amendments to FASB ASC (issued in the form of ASUs) are initially incorporated into FASB ASC in "pending content" boxes that follow the paragraphs being amended with links to the transition information The pending content boxes are meant to provide users with information about how the guidance in a paragraph will change as a result of the new guidance Pending content applies to different entities at different times due to varying fiscal year-ends, and because certain guidance may be effective on different dates for public and nonpublic entities As such, FASB maintains amended guidance in pending content boxes within FASB ASC until the roll-off date Generally, the roll-off date is six months following the latest fiscal year end for which the original guidance being amended could still be applied Presentation of FASB ASC Pending Content in AICPA Guides Amended FASB ASC guidance that is included in pending content boxes in FASB ASC on July 1, 2018, is referenced as "Pending Content" in this guide Readers should be aware that "Pending Content" referenced in this guide will eventually be subjected to FASB's roll-off process and no longer be labeled as "Pending Content" in FASB ASC (as discussed in the previous paragraph) Terms Used to Define Professional Requirements in This AICPA Guide Any requirements described in this guide are normally referenced to the applicable standards or regulations from which they are derived Generally, the terms used in this guide describing the professional requirements of the referenced standard setter (for example, the ASB) are the same as those used in the applicable standards or regulations (for example, "must" or "should") However, where the accounting requirements are derived from FASB ASC, this guide uses "should," whereas FASB uses "shall." In its resource document "About the Codification" that accompanies FASB ASC, FASB states that it considers the terms "should" and "shall" to be comparable terms and to represent the same concept — the requirement to apply a standard Readers should refer to the applicable standards and regulations for more information on the requirements imposed by the use of the various terms used to define professional requirements in the context of the standards and regulations in which they appear AAG-INV ©2018, AICPA ix Certain exceptions apply to these general rules, particularly in those circumstances where the guide describes prevailing or preferred industry practices for the application of a standard or regulation In these circumstances, the applicable senior committee responsible for reviewing the guide's content believes the guidance contained herein is appropriate for the circumstances Applicability of Generally Accepted Auditing Standards and PCAOB Standards Appendix A, "Council Resolution Designating Bodies to Promulgate Technical Standards," of the AICPA Code of Professional Conduct recognizes both the ASB and the PCAOB as standard setting bodies designated to promulgate auditing, attestation, and quality control standards Paragraph 01 of the "Compliance With Standards Rule" (ET sec 1.310.001 and 2.310.001) requires an AICPA member who performs an audit to comply with the applicable standards Audits of the financial statements of those entities subject to the oversight authority of the PCAOB (that is, those audit reports within the PCAOB's jurisdiction as defined by the Sarbanes-Oxley Act of 2002, as amended) are to be conducted in accordance with standards established by the PCAOB, a private sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002 The SEC has oversight authority over the PCAOB, including the approval of its rules, standards, and budget In citing the auditing standards of the PCAOB, references generally use section numbers within the reorganized PCAOB auditing standards and not the original standard number, as appropriate Audits of the financial statements of those entities not subject to the oversight authority of the PCAOB (that is, those audit reports not within the PCAOB's jurisdiction as defined by the Sarbanes-Oxley Act of 2002, as amended) — hereinafter referred to as nonissuers4 — are to be conducted in accordance with GAAS as issued by the ASB The ASB develops and issues standards in the form of SASs through a due process that includes deliberation in meetings open to the public, public exposure of proposed SASs, and a formal vote The SASs and their related interpretations are codified in AICPA Professional Standards In citing GAAS and their related interpretations, references generally use section numbers within the codification of currently effective SASs and not the original statement number, as appropriate The auditing content in this guide primarily discusses GAAS issued by the ASB and is applicable to audits of nonissuers Users of this guide may find the tool developed by the PCAOB's Office of the Chief Auditor helpful in identifying comparable PCAOB standards The tool is available at http://pcaobus.org/ standards/auditing/pages/findanalogousstandards.aspx Considerations for audits of entities in accordance with PCAOB standards may also be discussed within this guide's chapter text When such discussion is provided, the related paragraphs are designated with the following title: Considerations for Audits Performed in Accordance With PCAOB Standards PCAOB guidance included in an AICPA Guide has not been reviewed, approved, disapproved, or otherwise acted upon by the PCAOB and has no official or authoritative status See the definition of the term nonissuer in the AU-C Glossary ©2018, AICPA AAG-INV x Guidance for Issuers Management Assessment of Internal Control As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted final rules requiring companies subject to the reporting requirements of the 1934 Act, other than registered investment companies and certain other entities, to include in their annual reports a report from management on the company's internal control over financial reporting Business development companies not fall within the scope exception contained in Section 405 and are required to include a report from management on the company's internal control over financial reporting However, see paragraphs 1.62–.64 of this guide for discussion of the Jumpstart Our Business Startups Act of 2012, which explains that certain business development companies may be temporarily exempt from certain financial reporting disclosures and regulatory requirements, including Section 404 of the Sarbanes-Oxley Act of 2002 The SEC rules clarify that management's assessment and report is limited to internal control over financial reporting As established by Rule 12b-2 of the 1934 Act, the auditor's attestation for large accelerated and accelerated filers is required However, Section 404(c) of the Sarbanes-Oxley Act of 2002 provides that an attestation report of a registered public accounting firm on internal control over financial reporting is not required for an issuer that is neither an accelerated filer nor a large accelerated filer Applicability of Quality Control Standards QC section 10, A Firm's System of Quality Control,5 addresses a CPA firm's responsibilities for its system of quality control for its accounting and auditing practice A system of quality control consists of policies that a firm establishes and maintains to provide it with reasonable assurance that the firm and its personnel comply with professional standards, as well as applicable legal and regulatory requirements The policies also provide the firm with reasonable assurance that reports issued by the firm are appropriate in the circumstances QC section 10 applies to all CPA firms with respect to engagements in their accounting and auditing practice In paragraph 06 of QC section 10, an accounting and auditing practice is defined as "a practice that performs engagements covered by this section, which are audit, attestation, compilation, review, and any other services for which standards have been promulgated by the AICPA ASB or the AICPA Accounting and Review Services Committee under the "General Standards Rule" (ET sec.1.300.001) or the "Compliance With Standards Rule" of the AICPA Code of Professional Conduct Although standards for other engagements may be promulgated by other AICPA technical committees, engagements performed in accordance with those standards are not encompassed in the definition of an accounting and auditing practice." In addition to the provisions of QC section 10, readers should be aware of other sections within AICPA Professional Standards that address quality control considerations, including the following provisions that address engagement level quality control matters for various types of engagements that an accounting and auditing practice might perform: All QC sections can be found in AICPA Professional Standards AAG-INV ©2018, AICPA 711 Subject Index LEGAL DEFINITION OF INVESTMENT COMPANY 1.15 LEGAL FEES 8.31 LEGAL SURVIVOR OF BUSINESS COMBINATION 8.39 LENDING, PORTFOLIO SECURITIES 2.137–.145 LETTERS OF CREDIT 7.42 LEVEL 1, 2, AND INPUTS 2.66 LEVEL LOADS 4.03 LIABILITIES Fair value measurement see fair value Financial statement categories 7.69–.81 Offsetting assets and liabilities 7.191–.203 Potential, put or call options 3.44 Recognition of, liquidation basis of accounting 8.55 Recording for dividends 1.56 UIT statement of assets and liabilities, illustrative 9.18 LIFE INSURANCE CONTRACTS see also variable contracts 10.02 LIMITED DURATION COMPANIES 7.32–.40 LIMITED LIABILITY INVESTMENT PARTNERSHIPS AND COMPANIES 7.32–.40, 7.124 LIMITED LIFE ENTITIES, LIQUIDATION BASIS OF ACCOUNTING 8.53 LINES OF CREDIT 3.47 LIQUIDATION 3.43, 3.44 LIQUIDATION BASIS OF ACCOUNTING 8.51–.62 Application circumstances 8.52–.54 Presentation and disclosure 8.57–.62 Recognition and measurement provisions 8.55–.56 LIQUIDITY RISK 2.156, 2.157, 3.35 LITIGATION AWARDS 2.104–.105 LOADS see also commissions Back-end 4.03, 4.04, 10.13 CDSL see contingent deferred sales load Defined 1.23 Front-end 4.03, 4.04–.05, 5.02–.03, 8.14, 10.13 Generally 4.03–.07 Level 4.03 Multiple-class funds 5.02–.03 LOAN COMMITMENTS 3.47–.48, 7.74 LOAN ORIGINATION ACTIVITY, IN DEFINING INVESTMENT COMPANY 1.09–.13 LONG POSITIONS 3.22, 7.35, 7.164, 7.166 ©2018, AICPA LOSSES Capital see capital gains or losses Derivatives 7.60 Elective deferral of late year 6.79–.82 Fair value measurement 7.87 Foreign investments 2.159–.160 Hedging to reduce risk of 6.29, 6.32, 6.43 Multiple-class funds allocation 5.10, Exhibit 5-1 at 5.96 Ordinary 6.87, 6.133–.134 Realized and unrealized see realized and unrealized gains or losses Straddle sale rules 6.104–.105 Tax benefits 6.108 Testing classifications for tax purposes 11.65 LUMP SUM PAYMENTS, VARIABLE CONTRACTS 10.11–.13 M MANAGEMENT, RESPONSIBILITIES AND CONSIDERATIONS OF Auditor’s communication with Appendix C at 11.103 Certification of financial statements 11.22 Foreign currency transactions 2.158 Funds of funds 5.26–.29 Going concern consideration 11.33–.34, 11.37–.43, 11.46–.47, 11.50–.52, 11.55–.56 Investment valuation assumptions 11.91–.97 Master-feeder funds 5.78, 5.80 Offshore funds 6.130 Override of controls by Appendix C at 11.103 Representations see written representations MANAGEMENT FEES 1.38, 6.51, 7.76, 7.119, 7.179, 8.01–.03, 8.12–.13 MANAGEMENT INVESTMENT COMPANIES see also open-end investment companies Business combinations 8.40 Defined as investment company 1.17–.18 Types 1.18 Variable contract issuers registered as see also variable contracts 10.28, 10.56 MANDATORILY REDEEMABLE FINANCIAL INSTRUMENTS 7.81, 7.108–.110 MARGIN ACCOUNTS 3.52–.54, 3.55, 3.66 MARK-TO-MARKET RULES Commodity and financial futures contracts 3.52 Excise taxes on undistributed income 6.94 Financial futures contracts 3.52 RIC tax considerations 6.94, 6.103, 6.118, 6.123–.124 Section 1256 contracts 6.103, 6.118 MARKET APPROACH TO VALUATION 2.58 AAG-INV MAR 712 Investment Companies MARKET DISCOUNT, AMORTIZATION COMPUTATION Appendix D MARKET QUOTATIONS 2.33, 2.41–.42, 2.45, 2.53, 11.86 MERGERS see business combinations MINUTES, BOARDS OF DIRECTORS/TRUSTEE 4.48 MARKET RISK 2.51, 2.85–.86, 3.35, 3.59, 3.61 MISSTATEMENTS see also material misstatement, risk of 12.14, Appendix C at 11.103 MASSACHUSETTS INVESTORS TRUST 1.21 MODIFIED OPINIONS 12.08–.16, 12.24, 12.44 MASTER-FEEDER FUNDS Audit considerations 5.64, 5.66–.90 Capital share transactions and distributions 4.24 Excise taxes on undistributed income 6.93 Financial statement presentation 5.40–.54, 7.12–.13, Exhibits 5-4 and 5-5 at 5.96 As funds of funds 5.22 Income-gain allocations 5.75–.78 Management representations 5.83, 5.87, 5.88–.90 Operational and accounting issues 5.18–.21 Organization costs 8.24 Taxes 5.19–.21, 5.84–.87, 6.93 Written representations 5.88–.90 MONEY MARKET FUNDS Accounting for 2.101 Amortization 3.03 Audit consideration 11.100 Generally 3.02 Reforms 1.58 SEC exemption in portfolio reporting to shareholders 1.52 SEC registration and reporting 1.47 Securities valuation 2.101 Valuation 3.03–.07 MASTER NETTING ARRANGEMENTS 7.66, 7.191, 7.193–.195, 7.197, 7.203 MATERIAL MISSTATEMENT, RISK OF Audit considerations 4.39 Complex capital structures 5.72 Due to fraud 11.22, Appendix C at 11.103 Generally 11.04–.06 Investment valuations 11.87–.89 Risk assessment procedures 11.07–.16 Understanding the entity and its environment 4.32, 4.36 MATERIAL WEAKNESS IN INTERNAL CONTROL 11.22, 11.28 MATERIALITY, DETERMINING 11.08 MATRIX PRICING 2.42 MATURITY DATE, SWAPS 3.58 MATURITY OF ASSETS AND LIABILITIES, STATEMENT OF CASH FLOWS 7.165 MBSs see mortgage-backed securities MDRs see mortgage dollar rolls MONEY MARKET REFORM RULE 1.58 MONITORING, OF COMPLIANCE 5.26–.27, 5.71, 5.80, 5.91, 5.93 MORTALITY RISK 10.15–.16, 10.32, 10.34 MORTALITY RISK PREMIUM 10.16 MORTGAGE-BACKED SECURITIES (MBSs) 2.121, 3.29–.31, 3.33, 3.77–.81 MORTGAGE DOLLAR ROLLS (MDRs) 3.77–.81 MORTGAGE PARTICIPATION SECURITIES see mortgage-backed securities MOST ADVANTAGEOUS MARKET, DEFINED 2.38 MULTIPLE-CLASS FUNDS Audit considerations 5.65 Class designations 5.03–.04 Fair value measurement 2.83 Financial statement presentation 5.32–.39, 7.04, Exhibit 5-3 at 5.96 Net asset value per share determination 2.24 Operational and accounting issues 5.02–.17, Exhibits 5-1 and 5-2 at 5.96 Unit investment trusts 9.14 MEASUREMENT DATE, INVESTMENT VALUATION Fair value measurement assumption 2.37 Liabilities 2.72, 2.73 NAV adjustment 2.93 In objective of valuation 2.58 Principle or most advantageous market 2.38 When volume or level of activity decreased 2.47, 2.49 MULTIPLE CLASSES OF SHARES Audit considerations 4.56 Capital accounts 4.24–.25, 4.56 Commonly used share classes 5.03 Financial highlights 7.173 Financial statements 5.31 Issuance 4.07, 5.06 Taxes 6.68 MEASUREMENT PERIODS, EXCISE TAXES ON UNDISTRIBUTED INCOME 6.84–.88 MUNICIPAL SECURITIES 3.13–.16, 3.23–.24, 3.35 AAG-INV MAR ©2018, AICPA 713 Subject Index MUTUAL FUNDS Audit considerations 4.31 Bad and good income from 5.30 Commissions 4.03, 4.05 Defined 1.23 Defined as management investment company 1.18, 1.20 Multiple-class see multiple-class funds Prospectuses 1.48 Rules and regulations 1.20 Shareholder transactions 4.14–.21 Unit investment trusts distinguished from 9.02 Variable contract investments 10.44 N NAKED OPTION 3.41 NARRATIVE DESCRIPTION OF SENSITIVITY 7.87, 7.91 NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS, UNIVERSAL LIFE INSURANCE MODEL REGULATION 10.25 NET ASSET VALUE (NAV) Audit considerations 11.73–.74 Calculation of 2.91–.97 Capital accounts 4.08, 4.29 Closed-end funds 1.24 Consolidation 7.11 Effective date of transaction and 1.56 Floating 1.58, 3.05 Funds of funds 5.94 Investment advisory fee 8.01 Mutual funds 1.23 Redemption rules 2.99–.100 NET ASSET VALUE PER SHARE Calculation of 2.19–.24 Defined 2.19, 7.106 Financial statement disclosure 7.106 Investments in entities that calculate 2.87–.100, 7.94 Investors in unitized nonregistered funds issued individual classes or series of shares 7.238 Multiple-class funds 5.07 Mutual funds 2.24 NET ASSETS Allocated to future contract benefits 10.24, 10.32–.33 Money market funds reforms 1.58 Net increase or decrease from operations 7.145 Statement of see statement of net assets NET CAPITAL GAINS Excess reported amounts 6.44 Excise taxes on undistributed income 6.87–.88, 6.94 ©2018, AICPA NET CAPITAL GAINS—continued RIC tax considerations 6.18–.24, 6.40–.41, 6.66 NET CAPITAL LOSSES, RIC TAX CONSIDERATIONS 6.25 NET INCOME, CAPITAL GAINS OR LOSSES 6.84 NET INVESTMENT INCOME 4.25, 7.130 NET INVESTMENT INCOME RATIO 7.179, 7.230 NET OPERATING LOSSES 6.20 NET ORDINARY LOSSES 6.86, 6.87 NET REALIZED AND UNREALIZED GAINS Determination of 2.102–.110 Distribution accounting 4.25 Financial statement presentation 6.15 Income tax expense 6.04–.05 Taxes 6.15 NET TAX-EXEMPT INCOME 6.38 NET TAX-EXEMPT INTEREST 6.35, 6.38 1933 ACT see Securities Act of 1933 1934 ACT see Securities Exchange Act of 1934 1940 ACT see Investment Company Act of 1940 90 PERCENT DISTRIBUTION TEST, RIC QUALIFICATION 6.64–.67 90 PERCENT GROSS INCOME TEST, RIC QUALIFICATION 6.48–.52 NO-LOAD FUNDS 1.23, 1.40 NONCOMPLIANCE WITH LAWS AND REGULATIONS 11.19–.20 NONCONTROLLING INTEREST IN SUBSIDIARY 7.15–.16, 7.109 NONDIVERSIFIED COMPANIES 1.26 NONFUNCTIONAL CURRENCY 6.110, 6.112, 6.114, 6.116 NONPERFORMANCE RISK 2.77–.78 NONPUBLIC ENTITIES Defined 7.88 Fair value disclosure 7.88, 7.102 Investment companies 7.12–.13 Mandatorily redeemable financial instruments 7.108–.110 NONPUBLICLY TRADED INVESTEES, INVESTMENTS IN 5.26–.29 NONQUALIFYING INCOME, RIC GROSS INCOME TEST 6.50 NONRECOGNIZED SUBSEQUENT EVENTS 7.156 NONREGISTERED INVESTMENT COMPANIES Auditor’s reports 12.06–.19, 12.53 Classes of 7.175 AAG-INV NON 714 Investment Companies NONREGISTERED INVESTMENT COMPANIES—continued Custody of securities 11.58 Defined 1.32 Fair value disclosure 7.102 Financial statements 7.01 Governance 1.37 Hedge funds 1.31 Illustrative financial statements, disclosures and calculations 7.230–.240 Investment valuation 11.75 Limited life entities, liquidation basis of accounting 8.53 Management fees 8.12–.13 Written representations 12.53 OFFSETTING ASSETS AND LIABILITIES, FINANCIAL STATEMENTS 7.191–.203 OFFSETTING EXPENSES 6.104–.105, 7.117, 7.123, 8.17 OFFSETTING POSITIONS IN MARKET RISK 2.85–.86 OFFSHORE FUNDS 1.17, 2.89, 5.19, 6.126–.130, 7.32–.40, 7.76 OID see original issue discount ONE-SIDE MASTER NETTING ARRANGEMENT 7.195 NOTES see also securities Municipal 3.13–.16 Structured 3.70–.73 Treasury 3.11 OPEN-END INVESTMENT COMPANIES see also mutual funds Defined as management investment company 1.18 Distribution liabilities 4.26 Exchange-traded funds 1.18, 1.23, 1.29 Foreign investments 2.158 Net asset value basis 2.19, 7.11 Offering costs 8.29 Registration statements and reports 1.47, 1.49 Separate account as 10.02 Share redemption 1.23 Shareholder transactions 4.14, 4.22 Stock issuance costs 6.106 Stock redemption costs 6.107 NOTES PAYABLE AND OTHER DEBT 7.73–.74 OPERATING EFFECTIVENESS OF CONTROLS 4.36–.38 NOTES TO FINANCIAL STATEMENTS Business development companies 7.204–.205 Comparative financial statements 7.05 Deferred fees 7.236 Distributable earnings disclosure 7.103–.104 Financial highlights in 1.52 Funds of funds 5.62, Exhibit 5-6 at 5.96 Illustrative 7.228 Master-feeder funds 5.49–.50, Exhibits 5-4 and 5-5 at 5.96 Multiple-class funds 5.37, Exhibit 5-3 at 5.96 UIT financial statements, illustrative 9.22 Variable contracts 10.63 OPERATIONS Capital accounts 4.02–.21 Complex capital structures 5.02–.29 Custody of securities 2.06–.08 Organization costs 8.27 Recordkeeping 2.04–.05 Routine investment procedures 2.12–.18 Segregated accounts 2.09–.11 Statement of see statement of operations Statement of changes in net assets 7.148 NONREGISTERED INVESTMENT PARTNERSHIPS Clawbacks 7.125–.126 Comparative financial statements 7.05–.07 Financial highlights 7.175–.177, 7.179 Schedule of investments 7.32–.40, 7.234 Statement of cash flows 7.164 Statement of changes in net assets 7.150–.152, 7.239 NOTICE OF DISTRIBUTIONS TO SHAREHOLDERS 1.60 O OBSERVABLE INPUTS 2.64–.65, 11.95–.96 OCC see Options Clearing Corporation OFF-BALANCE SHEET FINANCIAL INSTRUMENTS 3.48 OFFERING COSTS 7.55, 8.26, 8.28–.35 AAG-INV NON OPINIONS ON FINANCIAL STATEMENTS Adverse opinion 12.17–.18 Formation of 12.01, 12.03–.05 Modified opinions 12.08–.16, 12.24, 12.44 Qualified opinion 12.13–.16 Unmodified opinion 12.06–.07 Unqualified opinion 12.21–.22 OPTIONS As debt 7.161 Defined 3.41 Disclosure requirements 2.149 Diversification tests, RIC 6.55 Put or call see put or call options Sale of 6.100 Schedule of open option contracts written 7.220 Structured note 3.70 Swaption 3.64 ©2018, AICPA 715 Subject Index OPTIONS CLEARING CORPORATION (OCC) 3.43 ORDERLY TRANSACTIONS 2.47–.51 ORDERS TO PURCHASE OR REDEEM 4.08–.12 ORDINARY DIVIDENDS 6.26, 6.43 ORDINARY INCOME 6.21, 6.84–.85, 6.113 ORGANIZATION COSTS 8.24–.27 ORIGINAL ISSUE DISCOUNT (OID) 6.98, 6.112, Appendix D OTHER INCOME, STATEMENT OF OPERATIONS 7.115 OTHER INFORMATION, AUDIT CONSIDERATIONS Appendix A at 11.101 OTHER LIABILITIES, IN FINANCIAL STATEMENT 7.77–.81 PENNY-ROUNDING METHOD, MONEY MARKET FUND SECURITIES VALUATION 2.101 PERFORMANCE EXAMINATION, ATTEST REPORTS FOR 12.52 PERIODIC PAYMENTS 3.29, 10.11, 10.13 PERSONAL HOLDING COMPANY 6.75, 6.132 PERVASIVE, DEFINED 12.14 PFIC see passive foreign investment companies PIK BONDS see payment-in-kind (PIK) bonds PO SECURITIES see principle-only (PO) securities POOLING OF FUNDS 12.39–.40 POOLS, COMMODITY 1.35, 7.17, 7.32–.40 PORTFOLIO RISK 3.57 OVER-THE-COUNTER (OTC) MARKET 2.39, 2.42, 3.65 PORTFOLIO SECURITIES LENDING 2.137–.145 OVERRIDE OF CONTROLS BY MANAGEMENT, AUDIT RESPONSE Appendix C at 11.103 PORTFOLIOS Audit considerations 11.57–.100, Appendices A to C at 11.101–.103 Currency risk 3.57 Generally 2.01 Insured portfolio securities 3.17 Investment objectives and policies 2.02–.03 SEC exemption in portfolio reporting to shareholders 1.52 SEC registration and reporting 1.47 Series funds 6.19 Shareholder report exclusion for money market funds 7.29 Tests of transactions 11.64–.69 Turnover rate 7.183 Unit investment trusts 9.07 OWNERSHIP INTERESTS 6.108, 7.173–.175, 9.14 P PAID-IN CAPITAL, STATEMENT OF NET ASSETS DISCLOSURE 7.104 PARTNERSHIPS Excise taxes on undistributed income 6.93 Financial statements 7.05–.07, 7.32–.40 Generally 1.17 Master-feeder funds as 5.20–.21 Net asset disclosure scope 7.103 Nonregistered see nonregistered investment partnerships Offering costs 8.29, 8.32–.33, 8.35 RIC gross income test 6.50 Schedule of investments 7.32–.40, 7.234 Small business investment companies 6.131 Statement of cash flows 7.164 Statement of changes in net assets 7.149 PASS-THROUGH ENTITIES 6.31, 6.44, 7.103 PASSIVE FOREIGN INVESTMENT COMPANIES (PFIC) 6.94, 6.119–.125 PASSIVE INCOME, PRODUCING 6.121 PAYABLES 2.168, 4.54, 7.70, 7.73–.74 PAYMENT-IN-KIND (PIK) BONDS 3.37–.38 PAYOUT PERIOD 10.23–.25 ©2018, AICPA POSITION, DEFINED 6.104 POST-OCTOBER CAPITAL LOSS 6.79–.80 POSTENACTMENT CAPITAL LOSSES, RICs 6.21 PRACTICABLE, DEFINED 12.12 PRACTICAL EXPEDIENT 2.87–.89, 2.94–.99, 5.25, 5.94, 5.96 PREENACTMENT CAPITAL LOSSES, RICs 6.21 PREFERENTIAL DIVIDENDS 5.17, 6.68 PREFERRED STOCK 7.107 PREMIUMS Amortization 2.119–.121, 6.36, Appendix D Bond, RIC tax computation 6.102 Fair value measurement 2.43 Market risk 2.51 On options 3.41 AAG-INV PRE 716 Investment Companies PREMIUMS—continued Variable contracts 10.08, 10.10, 10.14, 10.16, 10.20, 10.25, 10.47 PUT OR CALL OPTIONS—continued Warrants distinguished from 3.45 Written options 3.41–.44 PREPAID EXPENSE 7.55, 8.31 PUTABLE SWAPS 3.64 PREPAYMENT, MORTGAGE-BACKED SECURITIES 3.31 Q PREPAYMENT RISK 3.33 QDI see qualified dividend income PRESENT VALUE TECHNIQUES 2.61–.63 QEF see qualified electing fund PRICING SERVICES 2.41–.42, 2.45, 2.57, 11.77, 11.80, 11.82, 11.86 QUALIFICATION TESTS, RICs 6.24, 6.45–.57 PRINCIPAL MARKET, DEFINED 2.38 QUALIFIED CUSTODIANS 12.40–.43 PRINCIPAL-TO-PRINCIPAL MARKETS 2.39, 2.41, 2.88, 2.97 QUALIFIED DIVIDEND INCOME (QDI) 6.43 PRINCIPLE-ONLY (PO) SECURITIES 3.33 PRIVATE EQUITY FUNDS 1.17, 1.32–.33, 2.89, 7.95, 7.98 QUALIFIED ELECTING FUND (QEF) 6.122, 6.124 QUALIFIED LATE-YEAR ORDINARY LOSS 6.79 PRIVATE INVESTMENT ENTITIES see nonregistered investment companies QUALIFIED OPINION 12.13–.16 PRIVATE PLACEMENTS 2.27 QUALITY CONTROL STANDARDS Appendix A PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 11.20 PRO FORMA FINANCIAL STATEMENTS 8.40 PROFESSIONAL JUDGMENT 1.11, 7.85, 11.10, 11.92 PROFESSIONAL SKEPTICISM Appendix C at 11.103 PROFITS see earnings and profits PROPERTY-BY-PROPERTY METHOD 5.21 PROSPECTUSES Auditor’s understanding of 4.32 Business combinations 8.40 Master-feeder fund restrictions and compliance 5.80–.83 Open-end companies 1.47 Updates 1.48 PROXY MATERIALS 8.40 PUBLIC BUSINESS ENTITIES 6.10, 7.73, 8.47 PUBLICLY TRADED PARTNERSHIP (PTP) 6.48, 6.54 PURCHASED INTEREST, FOREIGN CURRENCY 2.166–.167 PURCHASES, CAPITAL ACCOUNTS 4.04–.05, 4.08–.12 PUT OR CALL OPTIONS Closing transaction 3.43 Discharge of obligation 3.42 Disclosure provisions 3.44 Financial statements 7.42, 7.71, 7.220 Generally 3.41–.44 Guarantees 3.44 Swaptions 3.64 AAG-INV PRE QUANTITATIVE INFORMATION DISCLOSURE REQUIREMENT 7.89 QUOTED MARKET PRICES 2.33, 2.42, 2.45, 2.53, 11.77–.78 QUOTED PRICES 11.86 QUOTED TRANSFER PRICES 2.75 R RATINGS High-yield securities 3.35 Municipal bonds 3.14, 3.16 Unit investment trusts 9.13 READILY AVAILABLE, DEFINED 7.210 REAL ESTATE FUNDS 2.89 REAL ESTATE MORTGAGE INVESTMENT CONDUITS (REMICs) 3.34 REALIZED AND UNREALIZED GAINS OR LOSSES Allocations 7.125 Business combinations 8.44, 8.48 Capital in investment accounts 2.102–.110, Appendix F Cumulative 7.126 Feeder funds 5.45 Financial statement presentation 6.15 Foreign currency transactions 6.110–.116, 7.133–.134, 7.144, Appendix F Investments 7.131–.132 Multiple-class funds 5.10, Exhibit 5-1 at 5.96 RIC tax considerations 6.40–.41, 6.96–.125 Sale of tax-exempt securities 6.37 Taxes 6.03–.05, 6.15 ©2018, AICPA Subject Index REASONABLE PERIOD OF TIME CRITERION, SUBSTANTIAL DOUBT ABOUT ENTITY’S CONTINUATION AS GOING CONCERN 11.33–.36, 11.39, 11.43, 11.45–.48, 11.51–.54 RECEIVABLES From brokers for securities 2.26 Financial statements 7.52–.55 Foreign currency transactions 2.168 Sales transactions 4.43, 4.54 Withholding tax implications 2.181 RECONCILIATION Custodians 12.40 Net cash to net increase or decrease in net assets from operating activities 7.170–.171 Shares outstanding 4.09, 4.44–.46 Transfer agent responsibilities 4.09 RECORD-SHARE METHOD 5.11–.12, 5.15, Exhibit 5-2 at 5.96 RECORDKEEPING see also internal control over financial reporting Capital account data 4.09, 4.12 Capital share transactions and distributions 4.25 Commissions 2.13 Fund record requirements 1.59 Generally 1.50, 1.54 Investment accounts 2.04–.05, 2.25–.30 RIC qualification tests 6.47 Sales and redemption of fund shares 4.09–.12 Securities orders 2.13 Shareholder accounts 4.50 Shareholder transactions 4.15, 4.20, 4.21 Transfer agents 2.05 RECOURSE PROVISIONS, PUT OR CALL OPTION DISCLOSURES 3.44 REDEMPTIONS Alternative funds 2.100 Capital accounts 4.08–.12 Closed-end funds 1.24 Expenses 8.14 Of fund shares 4.08–.12, 4.40–.43 Money market fund reforms 1.58 Mutual funds 1.23 Net realized gain or loss from investments 7.131 Portfolio securities lending 2.139 Stock redemption costs 6.107 REGISTERED INVESTMENT COMPANIES Audit considerations 4.32 Auditor’s reports 12.02, 12.20–.28 Business combinations 8.38 Closed-end management 1.27 Commodity pool operators 7.17 Employees 1.37 Equalization distributions 4.30 Financial highlights 7.177–.187 ©2018, AICPA 717 REGISTERED INVESTMENT COMPANIES—continued Financial statements 7.01, 7.22 Futures contracts 3.54 Illustrative financial statements 7.216–.229, 7.240 Investment advisory agreements 1.39 Schedule of investments 7.27–.31 SEC requirements 1.45–.51 Short position/sales 3.76 Statement of changes in net assets 7.147–.148 Written representations 12.54–.55 REGISTRATION OF SECURITIES 1.45–.51, 8.31 REGULATED INVESTMENT COMPANIES (RICs) Business combinations 8.41 Class-specific investments 5.09 Disclosures 7.188 Dividend rule 5.08 Unit investment trusts organized as 9.14–.15 REGULATED INVESTMENT COMPANIES (RICs), TAX CONSIDERATIONS 6.17–.134 Bond discount and premium 6.102 Capital gain dividends 6.39–.40, 6.78 Capital gains or losses 6.18–.24, 6.37, 6.39–.44, 6.66, 6.82, 6.87–.89, 6.94 Commissions 6.101 Computation of taxable income and gains 6.96–.125 Deficiency dividends 6.72–.73 Distributions 6.23, 6.25–.43, 6.46, 6.64–.82, 6.96–.98, 7.148 Diversification tests 6.53–.57, 10.50–.51 Dividends 6.22–.23, 6.25–.43, 6.64–.82, 6.96–.98 Dividends-received deductions 6.28–.30 Elective deferral of late year losses 6.79–.82 Equalization distributions 6.74–.77 Excess reported amounts 6.44 Excise tax exemptions 6.95 Excise tax on undistributed income 6.83–.95 50 percent test 6.53 Foreign currency transactions 6.109–.118 Foreign taxes 6.31–.33 Generally 6.17 Interest 6.96–.98 Limitations on tax benefits of losses 6.108 Net capital gains 6.18–.24, 6.44, 6.66 90 percent distribution test 6.64–.67 90 percent gross income test 6.48–.52 Offshore funds 6.126–.130 Passive foreign investment companies 6.119–.125 Preferential dividends 6.68 Publicly offered 6.68 AAG-INV REG 718 Investment Companies REGULATED INVESTMENT COMPANIES (RICs), TAX CONSIDERATIONS—continued Qualification tests 6.24, 6.45–.57 Requirements for qualification as 6.45 Sales of securities 6.99–.100 Section 988 transactions 6.109–.118 Section 1256 contracts 6.103, 6.118 Shareholder distributions 6.25–.43 Small business investment companies 6.131–.134 Stock issuance costs 6.106 Stock redemption costs 6.107 Tax straddles 6.104–.105 Taxable income 6.18–.24 25 percent test 6.54 Uncertainty in income taxes 6.12 As U.S organization 6.129 Variable contracts 6.58–.63 REGULATED INVESTMENT COMPANY (RIC) MODERNIZATION ACT OF 2010 5.08, 5.17, 6.21, 6.78 REIMBURSEMENT Business combinations 8.42 Class-specific expenses 5.09 Distribution expenses 8.06–.10, 8.14, 8.16–.17, 8.21–.22 REPRESENTATIONS see written representations REPURCHASE AGREEMENTS (REPOs) Accounting and reporting standards 2.30 Acquisition of 3.09 Closed-end funds 1.24 Defined 3.08 Disclosures related to 7.82–.83 Internal control consideration 11.32 Portfolio securities lending 2.138–.141 Public registrant financial statements 7.30 Reverse 2.30, 3.10, 3.77, 7.75 REPURCHASE FINANCING 2.139–.140 RESALE (REVERSE REPURCHASE AGREEMENT) 2.30, 3.10, 3.77, 7.75 RESULTS OF OPERATIONS see statement of operations RETURN OF CAPITAL 2.112, 5.16, 6.97 REVENUE BONDS see also municipal securities 3.14 REVENUE RECOGNITION 6.118, 6.120, Appendix C at 11.103, Appendix I REVERSE REPURCHASE AGREEMENTS 2.30, 3.10, 3.77, 7.75 REIMBURSEMENT PLAN, DISTRIBUTION EXPENSES 8.14 REVIEW REPORT ON INTERIM FINANCIAL INFORMATION 12.19 REINVESTMENT OF DIVIDENDS 4.27 REVISED FINANCIAL STATEMENTS 7.157 RELATED PARTIES 7.118, 11.68 RICs see regulated investment companies RELATED PERSON, DEFINED 12.41 RIGHTS OF SETOFF 7.194 REMICs see real estate mortgage investment conduits RISK Audit 11.04–.06 Credit see credit risk Currency 3.57 Default 3.66 Electronic confirmation 4.46 Expense 10.15, 10.17 Fraud risk factors Appendix C at 11.103 Hedging against, forward exchange contracts 3.57 High-yield debt securities 3.35 Interest rate 3.49, 10.32 Liquidity 2.156, 2.157, 3.35 Market 2.51, 2.85–.86, 3.35, 3.59, 3.61 Mortality 10.15–.16, 10.32, 10.34 Mortgage dollar rolls 3.80 Nonperformance 2.77–.78 Outside sources 4.46 Portfolio 3.57 Prepayment 3.33 Put or call option guarantees 3.44 Significant 5.91, 11.97 Variable contracts 10.15–.16, 10.32, 10.34 REPOs see repurchase agreements REPO-TO-MATURITY, DEFINED 3.08 REPO-TO-MATURITY TRANSACTION, PORTFOLIO SECURITIES LENDING 2.138 REPORTS AND REPORTING Annual shareholder reports 1.47, 1.52, 12.29–.35 Attest reports 12.51–.52 Auditor’s see auditor’s reports Financial reporting to shareholders 1.52–.53 Financial statements see financial statements Interim financial information 7.206–.212, 12.19 Internal control see internal control over financial reporting Offsetting assets and liabilities 7.191–.203 Registration statements for closed-end investment companies 1.49 Semiannual reports 1.47, 1.52, 7.206–.212, 12.19, 12.28 REPRESENTATION LETTER 12.55 AAG-INV REG ©2018, AICPA Subject Index RISK ASSESSMENT PROCEDURES 11.07–.16, 11.34–.43, Appendix C at 11.103 RULE 12B-1 FEES 1.23, 1.40–.41, 4.01, 4.06, 5.03, 6.106, 7.120, 8.14–.23, Table at 8.18 719 SCHEDULE OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS 7.222 SCHEDULE OF OPEN FUTURES CONTRACTS 7.221 SCHEDULE OF OPEN OPTION CONTRACTS WRITTEN 7.220 RULES AND REGULATIONS, GENERALLY 1.45–.51 SCHEDULE OF OPEN SWAP CONTRACTS 7.223 S SEASONED MORTGAGE-BACKED SECURITIES 3.31 SAFE HARBOR, VARIABLE CONTRACT TAXATION 10.45, 10.51 SEC FILER, DEFINED 7.155 SAFE HARBOR TEST, SEGREGATED ASSET ACCOUNTS 6.60 SECTION 988 TRANSACTIONS, RIC TAX CONSIDERATIONS 6.109 SALE OF INTEREST, FOREIGN CURRENCY 2.166–.167 SECURITIES Asset-backed 2.121 Bonds see bonds Collateralized mortgage obligations 3.33–.34 Custody of see custody and custodians Debt see debt securities Defined 7.48 Equity 6.115, 6.120, 6.122 Examinations of transactions 11.58–.63, 12.36–.45 Financial statements 7.48–.49 Income from 11.70–.72 Indexed 3.70–.73, 6.55 IOettes 3.33 Lending of 2.137–.145, 7.115, 11.32 Mortgage-backed 2.121, 3.29–.31, 3.33, 3.77–.81 Municipal 3.13–.16, 3.23–.24, 3.35 Principle-only 3.33 Put or call options see put or call options Real estate mortgage investment conduits 3.34 Recording basis 2.25–.30 Sales of 1.56–.57, 2.12–.18, 2.25–.26, 6.99–.101 Senior securities 2.09, 3.27, 3.76 Short positions and sales see short positions and sales Stocks see stocks Synthetic floaters 3.25–.28 Tax-exempt 3.25–.26, 6.37, 6.102 "To be announced" 3.18–.22, 3.79 Transaction procedures 2.12–.18 Treasury instruments 3.11, 3.12, 3.51, 3.53, 4.19 Unaffiliated issuers 7.217 When-issued 3.23–.24 SALES Foreign investments 2.164–.165 Fund shares 4.08–.12, 4.40–.43 Securities 1.56–.57, 2.12–.18, 2.25–.26, 6.99–.101 Unit investment trusts 9.07–.08, 9.10 SALES CHARGES see loads SALES COMMISSIONS see also loads 1.40, 2.13, 4.03–.07, 6.101, 8.15, 9.08 SARBANES-OXLEY ACT OF 2002 1.64, 4.21, 11.22 SAVINGS ASSOCIATIONS see also custody and custodians 12.41 SBA see Small Business Administration SBIA see Small Business Investment Act of 1958 SBICs see small business investment companies SCHEDULE OF CHANGES MADE TO THE TEXT FROM PREVIOUS EDITION Appendix L SCHEDULE OF FINANCIAL HIGHLIGHTS see financial highlights SCHEDULE OF INVESTMENTS 7.27–.46 Condensed version 7.233 Credit enhancements 7.42–.43 Financial support to investees 7.44–.46 Generally 1.52 Illustrative 7.217–.219, 7.233–.234 Investments in other investment companies 7.41 Nonregistered investment partnerships 7.32–.40, 7.234 Public registrants 7.30 Registered investment companies 7.27–.31 Summary version 12.27 "To be announced" securities 3.22 Unit investment trusts 9.19 ©2018, AICPA SECONDARY MARKET SALES 9.10 SECURITIES ACT OF 1933 (1933 ACT) Auditor’s understanding of 4.32 Capital accounts 4.31 Control structure 5.93 Generally 1.46–.48 AAG-INV SEC 720 Investment Companies SECURITIES ACT OF 1933 (1933 ACT)—continued Publicly offered RICs 6.68 Registration and reporting under 1.46 Separate accounts 10.26, 10.30 SECURITIES AND EXCHANGE COMMISSION (SEC) Accounting for uncertainty in income taxes by registered investment companies 6.12 Custodial agreements 2.06–.07 Disclosures in addition to GAAP requirements 7.215 Exemptive orders 4.01, 4.07, 4.56, 5.22 Financial statements 7.02 Investment company schedule of investments 7.29 Qualification as RIC filing 6.45 Registration with 1.45–.51, 10.07, 10.26–.31 Swaps 3.65, 3.69 SECURITIES BORROWED AND LOANED 2.30 SECURITIES EXCHANGE ACT OF 1934 (1934 ACT) Auditor’s understanding of 4.32 Broker-dealer expenses 7.122 Fund record requirements 1.59 Generally 1.46–.47 Qualified custodians under 12.41 Shareholder transactions 4.20 Subsequent events 7.155 Transfer agents 1.43 SECURITIES LENDING 2.137–.145, 7.115, 11.32 SEED CAPITAL STATEMENT OF ASSETS/LIABILITIES 1.47 SEGREGATED ACCOUNTS 2.09–.11, 3.76, 6.60–.63, 6.95 SELLER OF CREDIT DERIVATIVES 7.64 SEMIANNUAL REPORTS 1.47, 1.52, 7.206–.212, 12.19, 12.28 SENIOR SECURITIES 2.09, 3.27, 3.76 SENIOR SECURITY REPRESENTING INDEBTEDNESS 3.27 SEPARATE ACCOUNTS see also variable contracts Accounting issues 10.04 Defined 10.03 Diversification 10.49–.51 Establishment of 10.26 Insurance companies defined as investment companies 1.17, 1.19 Investment advisers 12.38 SEC registration and reporting 1.47 Shareholder transactions 4.15 Subaccount structure 10.06 AAG-INV SEC SEPARATE ACCOUNTS—continued Taxation 10.39, 10.49–.51 Variable contracts and 10.01–.06, 10.26–.27, 10.39, 10.49–.51 SEPARATE TRADING OF REGISTERED INTEREST AND PRINCIPLE OF SECURITIES (STRIPPED TREASURIES) 3.12 SERIES FUNDS Auditor’s reports 12.24–.26 Financial highlights 7.185–.187, 7.238 Financial statements 7.04 Statement of changes in net assets 7.150–.152 Tax implications 6.19 SERIES ROLL-UP 7.150, 7.185 SERVICE AUDITORS, REPORTS 11.30 SERVICE FEES 8.15 SERVICE ORGANIZATIONS Audit considerations 4.35 Fees 7.80 Financial statement disclosures 7.80 Generally 1.37 Internal control consideration in audit 11.29–.31, 11.84 Pricing 2.41–.42, 2.45, 2.57 Reports on controls at Appendix B at 11.102 SETOFF, RIGHTS OF 7.194 SETTLEMENT Income tax context 6.06 Sales and redemption transactions 4.43 SETTLEMENT DATE 3.18, 3.19, 3.55, 3.57, 6.115 SHAREHOLDER ACCOUNTS 4.50 SHAREHOLDERS Annual meeting 1.61 Capital gain dividends 6.40 Complaints 4.21, 4.52 Distributions to 1.60, 4.17, 6.25–.43, 6.70, 7.148, 7.169 Offshore fund taxes 6.130 Reporting to 1.47, 1.52–.53 Transactions 4.14–.30 SHAREHOLDERS’ EQUITY 2.72–.76, 7.100 SHARES OUTSTANDING 4.21, 5.10, 7.173, 7.187, 7.238, Exhibit 5-1 at 5.96 SHELF REGISTRATION STATEMENTS 8.31 SHORT POSITIONS AND SALES "Against the box" 3.74–.76 Cash dividends 2.117 As debt 7.161 Financial statements 7.35, 7.219 Rules and regulations 3.76 Schedule of investments 7.219 ©2018, AICPA Subject Index SHORT POSITIONS AND SALES—continued Statement of assets and liabilities 7.71 "To be announced" securities 3.22 Wash sale rules 6.100 SHORT-TERM DEBT INSTRUMENTS 7.30 SHORT-TERM INVESTMENTS, PURCHASE OF 3.02–.07 SIGNIFICANT DEFICIENCIES, IN AUDIT 11.22 SIGNIFICANT RISKS 5.91, 11.97 SIMULTANEOUS EQUATION METHOD 5.10, 5.11, 5.14, 5.15, Exhibit 5-2 at 5.96 SINGLE-NAME CREDIT DERIVATIVES 3.63 SIZE RISK (MARKET CAP), FOREIGN CURRENCY TRANSACTIONS 2.156 SMALL BUSINESS ADMINISTRATION (SBA) 1.27 SMALL BUSINESS INVESTMENT ACT OF 1958 (SBIA) 1.27, 1.46, 6.132–.134 SMALL BUSINESS INVESTMENT COMPANIES (SBICs) 1.18, 1.27, 1.47, 6.131–.134, Appendix C SMALL BUSINESS INVESTMENT INCENTIVE ACT OF 1980 1.46 SPECIAL PURPOSE FUNDS 1.17 SPILLBACK/THROWBACK DIVIDENDS 6.71 SPIN-OFFS 2.107 SPOT CONTRACT EXCHANGE RATE 6.114 SPOT RATES 2.152, 2.161, 3.60 STANDBY COMMITMENTS 3.49 STATE BLUE SKY LAWS see Blue Sky laws STATE SECURITIES COMMISSIONS, REGISTRATION WITH 1.46 STATEMENT OF ASSETS AND LIABILITIES Asset categories 7.47–.68 Deferred fees 7.76, 7.236 Fair value 7.84–.102 Fully benefit-responsive investment contracts 7.23–.26, 7.190, 7.235 Funds of funds 5.56–.57, Exhibit 5-6 at 5.96 Generally 1.52, 7.20 Illustrative 7.216–.223 Investment companies other than nonregistered partnerships 7.27–.31 Liability categories 7.69–.81 Master-feeder funds 5.42–.43, Exhibits 5-4 and 5-5 at 5.96 Multiple-class funds 5.33–.34, Exhibit 5-3 at 5.96 Schedule of investments see schedule of investments UIT financial statements, illustrative 9.18 Variable contracts 10.60 ©2018, AICPA 721 STATEMENT OF CASH FLOWS 7.159–.172 Cash flows from financing activities 7.169 Foreign exchange fluctuation impact on cash balances 7.171 Generally 1.53, 7.159–.165 Illustrative 7.227–.229 Noncash investing and financing activities 7.172 Reconciliation of net cash to increase or decrease in net assets 7.170–.171 Trading securities 7.166–.168 STATEMENT OF CHANGES IN NET ASSETS 7.147–.152 Funds of funds Exhibit 5-6 at 5.96 Generally 1.52 Illustrative 7.226 Interim statements 7.206 Investment partnerships 7.149 Master-feeder funds 5.47–.48, Exhibits 5-4 and 5-5 at 5.96 Multiple-class funds 5.36, Exhibit 5-3 at 5.96 Nonregistered investment partnership that includes general partner and one or more limited partners 7.150–.152, 7.239 Registered investment companies 7.147–.148 UIT financial statements, illustrative 9.21 Unitized funds issuing separate series of shares 7.150–.152 Variable contracts 10.62 STATEMENT OF FINANCIAL POSITION 7.18–.110 Fully benefit-responsive investment contracts 7.23–.26, 7.31 Generally 7.18–.22 Schedule of investments see schedule of investments Statement of assets and liabilities see statement of assets and liabilities Statement of net assets see statement of net assets Transfers of financial assets, disclosures related to 7.82–.83 STATEMENT OF NET ASSETS see also statement of changes in net assets Asset categories 7.47–.68 Funds of funds Exhibit 5-6 at 5.96 Generally 7.103–.110 Illustrative 7.224, 7.230 Liability categories 7.69–.81 Requirements 7.19 Schedule of investments 7.21 STATEMENT OF OPERATIONS 7.111–.146 Business combinations 8.44 Deferred fees 7.236 Expenses 7.116–.129 Fees as expenses 8.14 Fully benefit-responsive investment contracts 7.146 AAG-INV STA 722 Investment Companies STATEMENT OF OPERATIONS—continued Funds of funds 5.58–.61, Exhibit 5-6 at 5.96 Generally 1.52, 7.111 Illustrative 7.225 Investment income 7.112–.115 Master-feeder funds 5.44–.46, Exhibits 5-4 and 5-5 at 5.96 Multiple-class funds 5.35, Exhibit 5-3 at 5.96 Net increase (decrease) in net assets from operations 7.145 Net increase (decrease) in unrealized appreciation or depreciation on investments and translation of assets and liabilities in foreign currencies 7.135–.136 Net increase from payments by affiliates and net gains or losses realized on disposal of investments in violation of restrictions 7.137–.143 Net investment income 7.130 Net realized gain or loss from investments and foreign currency 7.131–.134, 7.144 UIT financial statements, illustrative 9.20 Variable contracts 10.61 STEP BONDS 3.39–.40 STOCK RIGHTS 2.115–.116 STOCK SPLITS 2.113 SUMMARY SCHEDULE OF INVESTMENTS, AUDITOR’S REPORT 12.27 SUPPLEMENTARY INFORMATION Financial highlights 7.187 Interim reports 7.212 SUPPORTING PARTIES, GOING CONCERN CONSIDERATION 11.41–.42 SWAPS 2.149, 3.58–.69, 7.71, 7.223 SWAPTIONS 3.64 SYNTHETIC FLOATERS 3.25–.28 T TAX-DEFERRED CONTRIBUTIONS 7.23 TAX-EXEMPT INCOME Distribution tests 6.64–.67 Exempt-interest dividends 6.34–.38 Regulated investment companies 6.18, 6.35–.37, 6.38 TAX-EXEMPT INDUSTRIAL DEVELOPMENT BONDS 3.14 TAX-EXEMPT SECURITIES 3.25–.26, 6.37, 6.102 TAX-FREE BUSINESS COMBINATIONS 8.41, 8.44, Appendix E STOCKS see also securities Issuance costs 6.106 Preferred 7.107 Redemption costs 6.107 RIC tax considerations 6.42 Rights to, warrants 3.46 Treasury 4.19 TAX INCREASE AND PREVENTION ACT OF 2014 6.25 STRADDLE SALE RULES 6.104–.105 TAXABLE INCOME Adjustments 6.20, 6.25 Bond discount and premium 6.102 Capital gains 6.18–.24, 6.84–.85, 6.87–.88, 6.118 Commissions 6.101 Deficiency dividends 6.72–.73 Distribution tests 6.64–.67 Distributions 6.46, 6.70 Dividends 6.28, 6.96–.98 Excise tax on undistributed income 6.67, 6.94 Exclusions 6.42 Foreign currency gains and losses, Section 988 transactions 6.94, 6.109–.110 Functional currency 6.111–.118 Interest 6.96–.98 Investment income 2.116 Limitations on tax benefits of losses 6.108 Mark-to-market rules and Section 1256 contracts 6.103, 6.118 Passive foreign investment companies 6.119–.125 Passive income 6.121 STRIPPED TREASURIES 3.12 STRUCTURED NOTES 3.70–.73 STUB PERIOD INFORMATION 8.58–.60 SUBACCOUNTS 10.06, 10.46–.47, 10.56 SUBCUSTODIAL ARRANGEMENTS 2.06, 2.184, 11.31 SUBORDINATED DEBENTURES 1.27 SUBSCRIPTION RIGHTS 2.115–.116 SUBSEQUENT EVENTS 7.153–.158 SUBSIDIARIES Consolidated financial statements 7.08–.17 Disclosures for business development companies 7.205 Noncontrolling interest in 7.15–.16, 7.109 SUBSTANTIAL DOUBT CRITERION, GOING CONCERN CONSIDERATION 11.33–.36, 11.39, 11.43, 11.45–.49, 11.51–.54 SUBSTANTIVE TESTS, CAPITAL ACCOUNTS AUDIT 4.39–.50 AAG-INV STA TAX POSITION 6.06–.07, 6.09, 6.11–.12 TAX RETURN OF CAPITAL 7.207 TAX STRADDLES, RIC TAX COMPUTATION 6.104–.105 ©2018, AICPA 723 Subject Index TAXABLE INCOME—continued Regulated investment companies 6.18–.24, 6.48–.52, 6.96–.125 Sales of securities 6.99–.100 Stock issuance costs 6.106 Stock redemption costs 6.107 Tax straddles 6.104–.105 Undistributed income 6.83–95 TIME DEPOSITS 7.51 TAXES 6.01–.134 Amortization of premiums and discounts Appendix D Asset diversification 6.16 Benefits of losses, limitations on 6.108 Business combinations 8.41, 8.44, 8.48 Deductions 6.28–.44, 6.68, 6.70, 6.85, 6.132 Deferred 6.05, 6.15, 7.105, 7.188 Disclosures 6.08–.11 Dividends 4.47, 5.08–.09, 5.17, 6.68 Excise see excise taxes Feeder funds 5.19, 5.21 Financial statements 6.03–.16 Foreign 6.14, 6.15, 6.31–.33 Income tax expense see income tax expense Master-feeder funds 5.19–.21, 5.64, 5.84–.87 Multiple-class funds 5.08–.09, 5.17 Multiple classes of shares 6.68 Overview 6.01–.02 Preferential dividends 6.68 RICs see regulated investment companies (RICs), tax considerations Small business investment companies 6.131–.134 Unit investment trusts 9.14–.15, 10.42 Unrecognized tax benefits 6.08–.10 Variable contracts 10.38–.55 Withholding 2.180–.182, 6.128 TOTAL RETURN Calculation of 7.180–.181, 7.232 Liquidation basis of accounting and 8.61 TBA see "to be announced" (TBA) securities TENDER OFFERS 2.27, 2.108–.109 TENDER OPTION BOND (TOB) TRUST 3.26–.28 TERM OF TRANSACTION, DEFINED 3.58 TERMINATION DATE, SWAPS 3.58 TESTS OF CONTROLS 4.36–.38, 12.48 THEORETICAL INVESTMENT, NONREGISTERED INVESTMENT FUNDS 7.175 TIPS see Treasury Inflation-Protected Securities "TO BE ANNOUNCED" (TBA) SECURITIES 3.18–.22, 3.79 TOB TRUST see Tender Option Bond (TOB) trust TRADE DATE 1.56, 2.25–.26, 3.58, 6.115 TRADING 2.122, 7.166–.168 TRADITIONAL (FIXED) ANNUITIES 10.02 TRANSACTION COSTS 2.33, 2.40 TRANSACTION PRICE, MEASURING INVESTMENT AT 2.29, 7.08–.09 TRANSACTIONS AND DETAIL RECORDS, AUDIT EXAMINATION OF Affiliate transactions 11.66–.69 Custody of securities 11.58–.63 Income from securities 11.70–.72 Money market funds 11.100 Net asset value 11.73–.74 Tests of portfolio transactions 11.64–.65 Valuation of investments 11.75–.99 TRANSFER AGENTS Auditor’s reports 12.46–.48 Inspections 4.21 Internal control 12.48 Reconciliation of accounts 4.09 Recordkeeping 2.05 Role and responsibilities 1.43 Shareholder transactions 4.15, 4.17–.18, 4.21 TRANSFERS OF ASSETS Disclosures 7.79, 7.82–.83 Portfolio securities lending 2.137–.145 TREASURIES, SEPARATE TRADING OF REGISTERED INTEREST AND PRINCIPLE OF SECURITIES (STRIPPED TREASURIES) 3.12 TREASURY BILLS 3.11, 3.51, 3.53 TREASURY BONDS 3.11 TREASURY INFLATION-PROTECTED SECURITIES (TIPS) 3.12 THIRD-PARTY CREDIT ENHANCEMENT 2.78 TREASURY MARKET PRACTICES GROUP 3.21 THIRD-PARTY SOURCES, FAIR VALUE ESTIMATES 11.79–.80 TREASURY NOTES 3.11 THOSE CHARGED WITH GOVERNANCE, COMMUNICATION WITH 11.24–.26, Appendix C at 11.103 TRUSTEES Investment valuation policies 11.76 Minutes 4.48 Unit investment trusts 9.05, 9.11–.12 Variable contract 10.26, 10.37 THRESHOLD AMOUNT, EMERGING GROWTH COMPANY 1.63 ©2018, AICPA TREASURY STOCK 4.19 AAG-INV TRU 724 Investment Companies TRUSTS see also unit investment trusts Business trusts 1.17 Common or collective trusts Appendix B RIC tax exemptions 6.95 TURNOVER RATE, BUSINESS COMBINATION 8.45 25 PERCENT TEST, RIC QUALIFICATION 6.54–.56 UNITIZED FUNDS ISSUING INDIVIDUAL CLASSES OR SERIES OF SHARES 7.150–.152, 7.175, 7.238 UNITS OF CAPITAL, STATEMENT OF NET ASSETS DISCLOSURE 7.104 UNMODIFIED OPINION 12.06–.07 UNOBSERVABLE INPUTS 2.59, 2.64–.66, 11.95–.96 UNQUALIFIED OPINION 12.21–.22 U UIT see unit investment trusts UNAFFILIATED ISSUERS, SCHEDULE OF INVESTMENTS IN SECURITIES OF 7.217, 12.27 UNREALIZED GAINS OR LOSSES see realized and unrealized gains or losses UNRECOGNIZED TAX BENEFITS 6.08–.10 UNUSUAL INCOME ITEMS 8.36 UNCOVERED WRITER OF CALL OPTION 3.41 U.S GOVERNMENT SECURITIES see also entries beginning with Treasury or Treasuries 3.11 UNDERLYING SECURITIES, UNIT INVESTMENT TRUSTS 9.10, 9.12 V UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT, INCLUDING INTERNAL CONTROL see also internal control over financial reporting Capital accounts 4.32–.38 Investment accounts 11.07–.08, 11.12, 11.83–.84 UNDERWRITERS see distributors UNDISTRIBUTED INCOME, TAX CONSIDERATIONS 6.17, 6.67, 6.83–.95 UNIT INVESTMENT TRUSTS (UIT) 9.01–.22 Audit considerations 9.07, 9.09 Defined 1.17, 1.28, 9.01 Disclosures 9.17 Distinguishing characteristics Table at 9.02 Distributions 9.11–.12 Equity UITs 9.04–.13 Financial statements, illustrative 9.16–.22 Fixed-income 9.04–.13 Formation of 9.07–.13 Forms for 1.47, 12.29–.35 Generally 9.01–.04 Insured portfolio securities 3.17 Mutual funds distinguished from 9.02 Offering costs 8.34–.35 Purpose of 9.03 Regulated investment companies 9.14–.15 Sales 9.07–.08, 9.10 SEC registration and reporting 1.47 Separate account as 10.02, 10.05, 10.06 Taxes 9.14–.15, 10.42 Variable contract issuers registered as 10.29–.31, 10.35, 10.56–.63 UNIT OF ACCOUNT 2.44, 2.70, 2.78–.79, 2.89 AAG-INV TRU VALUATION MODELS 11.79, 11.83 VALUATION OF INVESTMENTS see also mark-to-market rules Amortized cost method 2.101, 2.163, 3.03–.07 Applications 2.70–.84 Audit considerations 11.75–.99 Fair value see fair value Foreign currency transactions 2.155, 2.156, 2.158 Generally 2.31–.32 High-yield debt securities 3.36 Income tax expenses 6.05 Market valuations 2.33, 2.42, 2.45, 2.53, 11.86 Money market funds 2.101, 3.03–.07 Municipal bonds and notes 3.15–.16 Net asset value see net asset value; net asset value per share Techniques 2.52–.63 "To be announced" securities 3.20 VALUATION PROCESS DISCLOSURE REQUIREMENT 7.87, 7.90 VARIABLE ANNUITIES see also variable contracts 1.47, 10.02 VARIABLE CONTRACTS 10.01–.63 Audit considerations 10.31–.37 Defined 10.01 Financial statements, illustrative 10.56–.63 First payment amount 10.18 History 10.07–.10 Investment approaches 10.05 Life insurance 1.47, 6.61, 10.20–.22 Objective 10.11, 10.38 Payout (annuitization) period 10.23–.25 Product design 10.11–.22 RIC tax considerations 6.58–.63 SEC registration 10.26–.31 ©2018, AICPA 725 Subject Index VARIABLE CONTRACTS—continued Separate accounts see also separate accounts 10.01–.06 Single investment treatment 6.59 Subsequent payment amounts 10.19 Taxes 10.38–.55 WRITE-OFFS, DEFAULTED DEBT SECURITIES 2.130–.136 VARIABLE RATE DEMAND NOTE 3.13 WRITERS OF OPTIONS 3.41–.44 VARIABLE SALES CHARGES 1.40 WRITTEN ASSERTIONS 12.45 VARIATION MARGIN 3.52, 3.66 WRITTEN OPTIONS 3.41–.44 VENTURE CAPITAL INVESTMENT COMPANIES Defined 1.17, 1.27, 1.34 Generally Appendix C RIC qualification rules 6.57 Unit of account for 2.89 WRITTEN REPRESENTATIONS Capital stock 4.55 Going concern consideration 11.43 Master-feeder funds 5.83, 5.87, 5.88–.90 Nonregistered investment companies 12.53 Registered investment companies 12.54–.55 Related-party transactions 11.68 VERIFICATION, ATTEST REPORTS FOR 12.51–.52 VOLCKER RULE 3.28 W WAFIT RULES see widely held fixed income investment rules WORKOUT EXPENDITURES 2.135 WRAPAROUND ANNUITIES see also variable contracts 10.09, 10.43 X XBRL see eXtensible Business Reporting Language WAIVERS 4.56, 5.09, 7.119 Y WARRANTS see also securities 2.149, 3.45–.46 YIELD 3.14, 3.36 WASH SALE RULES 6.100 WHEN-ISSUED SECURITIES 3.23–.24 YIELD-MAINTENANCE DOLLAR ROLLS 3.77 WIDELY HELD FIXED INCOME INVESTMENT RULES (WAFIT) 9.14 Z WITHHOLDING TAX 2.180–.182, 6.128 ZERO COUPON BONDS 2.121, 3.39 ©2018, AICPA AAG-INV ZER ... This guide was prepared by the Investment Companies Special Committee About AICPA Audit and Accounting Guides This AICPA Audit and Accounting Guide has been developed by the AICPA Investment Companies. .. and reporting on their audit and attestation engagements This guide describes operating conditions and auditing procedures unique to the investment company industry and illustrates the form and. .. the auditor determines the relevance of other auditing guidance, auditing guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff and the auditor