New Accounting Issue and its Possible Affect on Asset Management Firms
In 2003, FASB's Emerging Issues Task Force (EITF) put forth guidance issue 03-1 relating to Other-than-Temporary Impairments of investment securities. At its March 31, 2004 board meeting, FASB ratified the guidance proposal and as a result, the issue has received wide-spread industry attention. The new accounting rules are designed to clarify the determining factors that would deem an impairment "other-than-temporary".
These rules may also affect asset management firms that (for accounting purposes) hold bonds that are classified as available-for-sale. According to the new guidelines, these firms would need to write down the value of all of their available-for-sale securities that have "other-than-temporary" impairments. The amount of these write-downs would flow through earnings, potentially causing significant income statement volatility and adverse liquidity impacts.
In addition, the new rule poses many interpretive challenges for both buyside and sellside securities firms. Accordingly, The Asset Managers Forum Accounting Policy Committee, under the leadership of Cindi Finn of ING Investment Management, is hosting a call on Friday, September 10, 2004 at 2 p.m. to begin to discuss the possible effects of EITF 03-1 on asset management firms and to discuss anticipated challenges of implementation. To participate in the AMF Accounting Policy Committee conference call, please contact Douglas Taggart at 646.637.9273.
Click here to read EITF Issue 03-1
A Successful Advocacy Effort:
SEC Modifies Final Rule on Side-by-Side Management According to the AMF COO Group's and Other Industry Comments
As reported in the August 20 AMF COO Weekly Report, the Securities and Exchange Commission voted unanimously to approve rule amendments that are designed to improve the disclosure provided by funds regarding their portfolio managers, requiring disclosure if mutual fund managers simultaneously manage other funds such as hedge funds. The final rule was adopted with modifications that are aligned with the comments provided by the AMF COO Group's letter to the SEC. The SEC has implemented the following modifications to the final rule:
- Limited the number of portfolio management team members required to be disclosed.
- Will not require a fund or an investment advisor to disclose the policies and procedures used to address conflicts of interest.
- Limited the type of information required to be disclosed regarding the compensation structure of portfolio managers.
- Limited the disclosure of securities ownership of portfolio managers to only equity securities.
- Eliminated the proposed requirement to include the name of the investment company or account in which the manager owns shares and the title of the class of securities owned, as well as the mandatory tabular format.
The new final rule will be a discussion item for the AMF COO Group's September meeting. Thomas Hirschfeld, COO of Investments at J. & W. Seligman & Co. Incorporated, serves as the Chairman of the AMF COO Group.
Click here to read the AMF COO Group's Comment Letter to the SEC