At the same time the convergence of US accounting standards with International Financial Reporting Standards (IFRS) was taking place, the Auditing Standards Board (ASB) was conducting the Clarity Project. The Clarity Project is intended to revise and re-codify US generally accepted auditing standards (US GAAS) to make auditing standards easier to read, understand and implement in practice, while at the same time converging US GAAS with the International Auditing and Assurance Standards Board of the International Federation of Accountants.

Long has the fair valuation of portfolio securities of investment companies been under scrutiny by regulators and auditors. Under the risk-based approach to auditing, fair valuation of investments remains one of the pillars for which effective auditing procedures are designed. In a 2001 letter to the Investment Company Institute, the Securities and Exchange Commission made the following comments in regard to fair valuation of portfolio securities:

It has been more than two years since the Securities and Exchange Commission (“SEC”) adopted amendments to Rule 206(4)-2 of the Investment Advisers Act of 1940 (the “Custody Rule”). While the initial response to the amendments from advisors and broker-dealers was mixed (See our previous post Initial Response to the Revised Custody Rule), it is imperative for advisors to ensure they are in compliance. On March 4, 2013, the SEC issued a Risk Alert and Investor Bulletin regarding the Adviser Custody Rule. The alert was issued in response to recent SEC examinations conducted as part of a National Examination Program that uncovered custody-related issues in around one-third of the advisors examined.

BBD is pleased to announce that Lori C. Ehleben, CPA, a principal in the firm’s Investment Management Group, has been promoted to partner.

As 2012 draws to a close, we are faced with much uncertainty about potential tax rate increases, the “fiscal cliff,” and much of the confrontation taking place on Capitol Hill. Whether we are going to step over the “fiscal cliff” or Congress finds a solution to avert it, we can all be sure of one thing: certain tax increases, tax cut expirations, or a combination of both are inevitable (e.g. 3.8% Medicare tax on investment income). That said, there remains uncertainty as to which tax rates will be raised and to what extent. For example, long term capital gain rates presently stand at 15% and are slated to increase. However, the possibility exists that Congressional compromises could keep them low. As such, we are in a situation where we need to rethink our year-end tax planning strategies and maybe reverse some of the more traditional action steps.

Regulations enacted in 2008 require brokers, transfer agents, and issuers to report cost basis information to the IRS and taxpayers. The regulations are effective in three stages, with three effective dates for different types of securities:

The Regulated Investment Company (“RIC”) Modernization Act of 2010 (the “Act” or “RIC Mod”) brought an array of changes beneficial to RICs. Certain of these changes allow RICs more flexibility in electing whether or not to defer or to recognize in the current taxable year certain “late year losses.” Late year losses is a new term introduced into tax parlance by RIC Mod which encompasses all post-October net capital losses, losses on certain enumerated items of ordinary income (such as code section 988 foreign currency losses and the decline in value in an investment in a passive foreign investment company (“PFIC”)) and post-December ordinary losses not so enumerated.

Effective two-way communication between audit committees and external auditors is an integral part of the audit process. Such communications improve the ability of the audit committee to provide oversight and provide an opportunity for the auditors to discuss relevant matters with a forum other than management. These types of communications are essential to a high quality audit.

The Public Company Accounting Oversight Board (“PCAOB”) recently issued PCAOB Release No. 2012-003 containing information for audit committees about the PCAOB inspection process. The formation of the PCAOB was one of the oversight changes which came out of the Sarbanes-Oxley Act of 2002 (“the Act”). The reason behind this release seems to be twofold, one is to assist audit committees in understanding the inspection process and the other is to assist them in gathering information from the audit firms about their inspections.