ICI Responds to Accounting Board's Request Concerning Financial Reporting

Washington, DC, April 18, 2007 - The Institute filed comments encouraging the Financial Accounting Standards Board (FASB) to ensure that valuation principles incorporated into generally accepted accounting principles are not inconsistent with the valuation requirements imposed on registered funds by the Investment Company Act of 1940.

Background
FASB's Invitation To Comment: Valuation Guidance for Financial Reporting asks whether more guidance is needed in regard to measuring fair value for purposes of financial reporting, how guidance should be developed, and what parties should be responsible for its development.

Investment companies have extensive experience with valuing their investment securities: for example, mutual funds are required to value their securities daily for purposes of determining their current net asset value. Furthermore, the SEC has issued various items of interpretive guidance elaborating on the concept of value. Importantly, Regulation S-X requires registered investment companies, in preparing their financial statements, to value their investments consistent with the valuation concepts prescribed in the 1940 Act.

ICI Position
In a comment letter, ICI states that it is imperative that the valuation principles incorporated into generally accepted accounting principles are not inconsistent with the valuation requirements imposed on registered funds by the 1940 Act. Funds cannot concurrently comply with differing valuation regimes. In this regard, ICI supported that the FASB ultimately rejected application of block discounts to actively traded securities when it adopted FAS No. 157.

The Institute agrees with the Board's conclusion that fair value reporting for financial assets and financial liabilities provide financial statement users with more relevant and understandable information than cost-based measures. ICI encourages the Board to continue to incorporate fair value measurements into financial reporting, particularly where those measurements are corroborated by market data.

If the Board ultimately decides to issue valuation guidance for financial reporting, ICI strongly recommends close coordination with the SEC. If the Board decides to establish a resource group to advise and assist in developing valuation guidance for financial reporting, ICI also recommends the inclusion of representatives from the investment company industry.

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