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Business and Policy Areas
Business and Policy Areas
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Alternative Investments and the AICPA

The Issue

In August 2005, the American Institute of Certified Public Accountants (AICPA) issued two Auditing Interpretations of Statements on Auditing Standards (SAS) pertaining to auditing fair values. (Auditing Interpretations are issued by the Audit Issues Task Force (AITF) and reviewed by the Auditing Standards Board (ASB), the senior technical body of the AICPA to provide CPAs with guidance regarding application of individual SASs in specific circumstances.)

NACUBO and higher education institutions have focused on Auditing Interpretation - AU 332 - "Auditing Investments in Securities Where a Readily Determinable Fair Value Does Not Exist."

  • Simply receiving a confirmation from a third party - either in the aggregate or on a security by security basis - does not in and of itself constitute adequate audit evidence with respect to the valuation assertion.
  • Receiving a confirmation from a third party does not constitue adequate audit evidence with respect to the existence assertion.
  • What may not be appropriate was clear but no guidance was provided concerning auditor judgement regarding what might be considered appropriate and sufficient audit evidence.
  • An Alternative Investments Task Force was formed early in 2006 to study the issues and provide recommendations.

AICPA Practice Aid

Practice aid for auditors, "Alternative Investments - Audit Considerations," released July 18, 2006 . This practice aid is the result of the proceedings of the Alternative Investments Task Force.

For a summary of the Practice Aid, view the NACUBO bulletin, AICPA Issues Practice Aid for Alternative Investments

Recommendations

The logical next steps for colleges and universities with alternative investments are:

  1. Read the Practice Aid and related materials.
  2. Communicate with your auditors about your institution's alternative investments and the impact of the interpretations on your financial statement audit.
  3. Document policies regarding pre-investment and post-investment due diligence and monitoring and understanding the funds' investment strategies and calculation of fair value.
  4. Review bond documents and other agreements that may be impacted if a scope limitation is received.

Resources

Do you have a good tool for enterprise risk or internal controls assessment?

If so, NACUBO would like to hear from you.

Past NACUBO Coverage

NACUBO contact: Sue Menditto, director, accounting policy