AICPA Issues Two Interpretations of Statements on Auditing Standards Regarding Investments

Print Version

August  25, 2005

The American Institute of Certified Public Accountants (AICPA) recently issued two Interpretations of Statements on Auditing Standards pertaining to auditing fair values: Auditing Derivative Instruments, Hedging Activities, and Investments in Securities; and Auditing Interests in Trusts Held by a Third-Party Trustee and Reported at Fair Value. The interpretations clarify rules surrounding circumstances in which the auditor determines that the nature and extent of auditing procedures should include testing the measurement of investments in securities or interests in a trust that holds investments in securities. In such instances, simply receiving a confirmation from a third party does not in and of itself constitute adequate audit evidence with respect to a fair market value assertion.

Many colleges and universities have fiscal year ends of June 30 (or later) and are concluding or are in the middle of their financial statement audit, so the AICPA interpretation is of serious concern. Over the past two weeks, NACUBO staff, the NACUBO Accounting Principles Council, and the largest accounting firms have been discussing the interpretation. The accounting firms are currently working with AICPA to clarify that a combination of current audit procedures will provide a satisfactory proxy for reported fiscal year end fair market values.

NACUBO will continue to track this issue and work with public accounting firms. To aid our efforts, NACUBO would like to hear from institutions currently struggling with this issue. 

Resources:

• AICPA Summary and Interpretation
• Business Officer  magazine article (NACUBO membership required)
• PricewaterhouseCoopers white paper

NACUBO staff contact: Sue Menditto, director, accounting policy.