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    ETIF Issue Key Areas

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    For Issue No. 09-D
    Application of the AICPA Audit and Accounting Guide, Investment Companies, by Real Estate Investment Companies.- evaluate the key areas being addressed by the EITF.

    Issue Details
    Issue No. 09-D, "Application of the AICPA Audit and Accounting Guide, Investment Companies, by Real Estate Investment Companies." The AICPA Real Estate Funds Project task force worked with AcSEC on a project intended to help industry practitioners understand how real estate funds should apply AICPA Audit and Accounting Guide, Investment Companies. While many real estate funds concluded that their funds were within the scope of the Guide and were applying AICPA Statement of Position 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies, the subsequent deferral of the effective date of SOP 07-1 by FSP SOP 07-1-1, Effective Date of AICPA Statement of Position 07-1, did little to reduce diversity in practice for those funds following the Guide. Some entities carry real estate investments at fair value because (a) they are investment companies that are required to apply the Guide, (b) they are wholly-owned by a pension plan that is required to carry investments at fair value, and (c) they believe prevalent industry accounting practices authorize them to carry such non-financial assets at fair value without regard to investment company attributes or pension plan ownership. The issue is whether an entity that is not in the scope of the Guide can carry real estate and other non-financial investments at fair value through analogy to the Guide or on the basis of industry practice. Also, when carrying real estate investments at fair value, the issues are how an entity should report net investment income and how real estate properties that are owned directly (fee simple) by the entity should be reported.

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    Solution Preview

    Report by an Entity
    Issue 09-D is about reporting comparable information regarding the investment decision.
    Investment companies do investments for generating income along with significance appreciation (Grueter, Wiggins & Thorne, 2006). Followings are two processes that should be used by the entity to report net investment income in the context of real estate investment under U.S. GAAP and IFRS:
    Process 1: In the case of that entity, who does not come under the scope of guide and want to carry non-financial assets in the context of real state, the entity should carry the real estate investments at the fair value by the authorization of current generally accepted accounting principle (GAAP) other than the (d) category of GAAP. Under the method of investment companies that is defined in topic 946, an entity should report the net investment income on the basis of distribution of dividend that is received form the process of investment and the accumulated purely (American Institute of CPAs, 2012). Therefore, the reporting related to the real estate investment at fair value could be useful for the investors to provide important ...

    Solution Summary

    The solution discusses the ETIF issue key areas.