Audit and Accounting Guide: Investment Companies

Chapter 8 Other Accounts and Considerations

Gray shaded text in this chapter reflects guidance issued but not yet effective as of the date of this guide, July 1, 2018, but becoming effective on or prior to December 31, 2018, exclusive of any option to early adopt ahead of the mandatory effective date. Unless otherwise indicated, all unshaded text reflects guidance that was already effective as of the date of this guide.

Investment Advisory (Management) Fee Expense

8.01 As discussed in chapter 1, “Overview of the Investment Company Industry,” of this guide, an investment company usually engages an investment adviser for a fee, which is generally the largest expense incurred by the investment company. This fee is usually reflected in the periodic net asset value calculation (daily, weekly, monthly, quarterly or less frequently) at rates established by the investment advisory agreement. Certain agreements may provide for performance fee adjustments based on a comparison of the investment company’s performance against an index specified in the agreement.

8.02 As stated in FASB Accounting Standards Codification (ASC) 946-20-25-10, performance fees by an investment adviser under an advisory agreement should be accrued by an investment company at interim dates based on actual performance through the accrual date. As discussed in paragraph 7.125 of this guide, Technical Questions and Answers (Q&A) section 6910.29, “Allocation of Unrealized Gain (Loss), Recognition of Carried Interest, ...