Proposed Changes to Investment Company Standards Could Impact Higher Education
January 10, 2012
Beneath the surface of two new proposed Accounting Standards Updates (ASUs) related to investment companies is a potential ticking time bomb for colleges and universities. The proposals – “Real Estate – Investment Property Entities (Topic 973)” and “Financial Services – Investment Companies (Topic 946)” were issued in October 2011 by the Financial Accounting Standards Board (FASB). While aimed at investment entities, they contain changes to the criteria for determining whether or not an entity is an investment company for accounting purposes.
The proposal related to Investment Property Entities identifies five criteria that must be met in order to be considered as such an entity. These include the requirement that substantially all of the organization’s activities be investments in real estate properties, and that the investments are made for total return purposes, including an objective to realize capital appreciation.
The Investment Companies proposal would change the criteria to qualify as an investment entity. Under this proposal, if an organization meets the definition of an investment property entity, it would not also be considered an investment company. Also excluded from the investment company definition would be funds with only one investor. Thus, investment property entities as well as those that no longer qualify as investment companies would be unable to apply investment-company accounting. As a result, some investments held by colleges and universities would no longer qualify for the “practical expedient” under ASU 2009-12 in determining fair value.
It is not uncommon for an institution to be the sole investor in a fund and, under the proposed guidance, an institution would no longer be able to use the net asset value supplied by the fund manager in determining the investment’s fair value. Instead, the institution would have to conduct a full-blown fair value analysis under Accounting Standards Codification (ASC) 820 “Fair Value Measurement.” Such an analysis can be complex and resource intensive, increasing the burden on accounting staff which may already be thinly stretched.
NACUBO’s Accounting Principles Council (APC) believes that investment companies should be defined by their characteristics – not by the characteristics of their investment vehicles. The APC will provide feedback to FASB on these issues by the February 15, 2012 comment deadline.
Director, Accounting Policy
- College Endowment Average Return Falls to 2.4 Percent in FY15, Endowment Spending Up Sharply
- NACUBO Urges One-Year Postponement of Changes to 1098-T Reporting Requirements
- GASB Addresses Asset Retirement Obligations and Seeks Field Testers
- 2016 Student Financial Services
March 13-15, 2016
- 2016 Higher Education Accounting Forum
April 10-12, 2016
- 2016 CAO and CBO Collaborations
August 1-2, 2016
- WEBCAST: Legislative Lunchcast: A 30-Minute Washington Update from NACUBO
Monday, February 22, 2016 12:00pm ET
- WEBCAST: Responsibility Center Management: Two Different Perspectives
Thursday, March 17, 2016 1:00PM ET
- WEBCAST: Title IX: Key Issues Surrounding Institutional Compliance
Wednesday, April 20, 2016 1:00PM ET
- WEBCAST: The Clery Act: Strategic Planning to Mitigate Institutional Risk
Thursday, May 26, 2016 1:00PM ET
- ON-DEMAND: NACUBO Live! Results of the 2015 NACUBO-Commonfund Study of Endowments
- A Guide to College and University Budgeting: Foundations for Institutional Effectiveness, 4th ed. - by Larry Goldstein
- NACUBO's Guide to Unitizing Investment Pools - by Mary S. Wheeler
- Managing and Collecting Student Accounts and Loans - by David R. Glezerman and Dennis DeSantis