US GAAP Investment Fund Interim Financial Statements
Here is an extract from the online course on US GAAP Fund Financial Statements.
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 fund’s 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 courses on US GAAP Fund Financial Statements that can be found here.
Accounting principles and practices should usually be the same in the interims as in the annual financial statements. However, if a change is being made in the current year, that change should be reflected in the interim financial statements, and then in the next set of annual financial statements.
For example, in its annual accounts for the year-ended 31st December 2016 Eureka Fund values its securities at bid price for long positions and offer price for short positions. For the next financial year Eureka Ltd will change its policy and value all security positions at mid price. The new valuation should be reflected in the financial statements of Eureka Ltd for next set of :
Interim financial statements for the 6 months ended 30th June 2017, and
The subsequent annual financial statements for the year-ended 31st December 2017
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), and
- 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.
For more on US GAAP fund financial statements or on IFRS fund financial statements, click here.