US GAAP Interim Financial Statements
The following is based on an extract from the online course US GAAP Fund Financial Statements Part 2. Interim financial statements are not required under US GAAP. But, a fund may be required to prepare and file interim financial statements with a regulator or stock exchange. This is usually for the first six months of the fund’s accounting year. If the funds interim financial statements are prepared under US GAAP they must comply with all relevant US GAAP requirements, including any requirements specifically for interim financial statements.
It should also be clearly stated whether the interim financial statements are audited or unaudited.
It is permitted that interim financial statements are produced in a summarised or condensed format, that is, they do not have to show all of the information and disclosures that are included in a full annual set of financial statements. Condensed information must be clearly identified as such. A full set of financial statements can be prepared for an interim period, if this is preferred.
Summarised financial statements: minimum disclosures
If summarised interim financial statements are prepared, certain minimum information must be included:
- Net Income
- Contingent items
- Fair value disclosures
- Derivatives disclosures
- Debt and equity security disclosures
- Changes in accounting principles or estimates
- Significant changes in financial position
Disclosures regarding contingent items, fair value, derivatives and debt and equity securities are discussed elsewhere in the online course US GAAP Fund Financial Statements.
Summarised financial statements: encouraged disclosures
If summarised interim financial statements are prepared, inclusion of the following is also encouraged:
- Statement of assets and liabilities
- Statement of cashflows
Changes in accounting policies
Changes in accounting policy in an interim period from any of the following must be disclosed: changes since
- The comparable interim period of the prior year
- The preceding interim period of the current year (if any)
- The prior annual period.
For example: The financial statements of Allegro Fund Ltd for the six months ended 30th June 2017 must disclose changes in the funds accounting policies since:
- The financial statements for the year-ended 31st December 2016 and
- The financial statements for the six months ended 30th June 2016
Changes in accounting estimates
The effect of any changes in accounting estimates during the period on the interim financial statements should be separately disclosed.
Income should be recognised and reflected in the statement of operations on the same basis as is used for the annual financial statements. For example: recognising dividends on their ex-date
Expenses are recognised and reflected in the statement of operations, so as to reflect an appropriate allocation of the expense to the interim period. The calculation of an expense charge will depend on the type of expense:
- Expenses incurred in the period: such as management fees, and
- Expenses accrued which will be paid later in the year: for example 50% of the annual audit fee charge is accrued in the interim financial statements for a 6 month period
Expenses should not be allocated to an interim period on an arbitrary basis, and the allocation method used should be consistent with that used for the annual financial statements.
- Interim financial statements are not required under US GAAP.
- If interim financial statements are prepared for a fund that applies US GAAP they must be in compliance with all relevant US GAAP requirements.
- It is permitted to prepare summarised or condensed interim financial statements.
- The accounting policies used in the interim financial statements should be same as used for annual financial statements.
- Changes in accounting policies and in accounting estimates should be disclosed.
- True or false: Interim financial statements must be prepared in a summarised format.
- On what basis should income be recognised in the interim financial statements?
- On what basis should “fixed fee” expenses such as directors’ fee be reflected in the interim financial statements?
If you’d like the answers to these questions, or to learn more about US GAAP or IFRS requirements for investment fund financial reporting, then visit https://quickstep.ie/training/