ICI Makes Recommendations on Application of International Accounting Standards to Funds

Washington, DC, November 16, 2007 - ICI supports the convergence of accounting principles and reporting requirements globally, but expressed concern with the application of international accounting standards to funds and urged that standards as they relate to funds converge toward existing U.S. principles that better serve fund shareholders. ICI's comments came in response to an SEC concept release on the topic.

Background
An August 7 SEC concept release seeks to explore the public's interest in allowing U.S. issuers, including mutual funds and other investment companies, to prepare financial statements in accordance with International Financial Reporting Standards (IFRS) for purposes of complying with the rules and regulations of the Commission. U.S. issuers presently prepare their financial statements in accordance with generally accepted accounting principles as used in the United States, referred to as U.S. GAAP.

Almost 100 nations now either require or allow the use of IFRS for the preparation of financial statements by listed companies, and other nations are following suit. This trend also has begun to affect U.S. issuers: for example, certain U.S. issuers that compete for capital globally operate in industry sectors in which a critical mass of non-U.S. companies report under IFRS.

The Commission's concept release seeks input regarding the role of IFRS, as published by the International Accounting Standards Board (IASB), as a basis for financial reporting in the U.S. public capital market by U.S. issuers. It hopes to gather input on the potential significance and effect of any such change to investors, issuers, and market participants as well as to the accounting profession in general.

ICI Position
In November 13 comments filed with the SEC, ICI generally supported the convergence of accounting principles and reporting requirements as a means to improve comparability and efficiency of financial reporting across global capital markets, but limited its comments to financial statements issued by SEC-registered investment companies.

ICI noted that IFRS does not provide investment-company-specific accounting standards or guidance like U.S. GAAP. As a result, fund financial statements would not reflect the nature of a fund's investing activities. ICI expressed strong concerns that investment company financial statements prepared under IFRS are less meaningful and less transparent than those prepared under investment-company GAAP, and noted similar reservations expressed by foreign associations representing funds. ICI recommend that the Commission ensure that there is substantial convergence relating specifically to investment company financial reporting before it provides investment companies with the option to prepare their financial statements under IFRS, and urged that the standards converge toward investment company GAAP, which better serves the interests of fund shareholders.

ICI elaborated on these concerns, offering recommendations in several specific areas. These areas include illustration of a fund's portfolio holdings, investment income, the change in value of its holdings, and key measures such as total return, income ratio, expense ratio, and portfolio turnover rate.

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