December 12, 2003
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: File No. S7-51-02
Dear Mr. Katz:
The Accounting Standards Executive Committee (AcSEC) Planning Subcommittee (PSC) of the American Institute of Certified Public Accountants and the Investment Companies Expert Panel (Expert Panel) appreciate the opportunity to comment on the Securities and Exchange Commission (SEC) Proposed Rule: Shareholder Reports and Quarterly Portfolio Disclosure of Registered Management Investment Companies (Proposed Rule). In particular, our letter focuses on the summary schedule of investments contained in the Proposed Rule.
The PSC and the Expert Panel support the SEC's objective to improve financial statement disclosures for registered investment companies so that the information is more useful and understandable to investors. Additionally, we acknowledge the need to address the concerns of financial statement preparers about minimizing the costs associated with the complete schedule of investments in shareholder reports. We believe that the best way to achieve those objectives is to conform the SEC's requirements for a summarized schedule of investments to the requirements of AICPA Audit and Accounting Guide, Audits of Investment Companies (Guide). We are concerned that the Proposed Rule, which differs in a number of respects from the Guide, will create confusion for investors.
When AcSEC added a project to its agenda in the 1990's to revise the Guide, its objectives included providing useful information to investors at a reasonable cost to preparers. The Guide's Exposure Draft proposed to remove the requirement from the prior Guide for a complete schedule of investments and replaced that with a requirement for a summarized schedule of investments that would be presented for all investment companies, other than investment partnerships, regardless of the types of investments held.
The Exposure Draft was subject to the AICPA's due process required for all significant changes to the Guide. At that time interested parties, including the SEC staff, had the opportunity to express their views about whether the summarized schedule of investments should appear in the financial statements of any type of investment company. Neither at the time the Guide was exposed for public comment nor subsequently has any evidence come to the attention of AcSEC, the PSC, or the Expert Panel to suggest that the benefits provided by the summarized schedule of investments in understanding an investment company's financial position were either insignificant or outweighed by its costs. We believe that the Guide's required summarized schedule of investments should not be modified or eliminated unless it is no longer useful. Regardless, if AcSEC concluded that changes to the Guide were warranted, those changes would require a similar due process to ensure that the needs of financial statement users are met. Additionally, we observe that the Proposed Rule would continue to require funds to file a complete audited schedule of investments with the SEC. Therefore, it would appear that the SEC recognizes the significance of the schedule of investments to understanding fund financial statements.
We are concerned that the proposed rule, as currently drafted, differs in that it is less rigorous and conflicts with the summarized schedule of investments required under generally accepted accounting principles (GAAP) as set forth in the Guide. As a result, we are unable to support the proposed rule as currently drafted. Those differences and our specific concerns are detailed as follows:
We understand the SEC's objective is to provide a set of rules that retain the spirit of the Guide and at the same time address the concerns of financial statement preparers about the costs associated with printing the complete schedule of investments in shareholder reports. However, in attempting to achieve that objective the Proposed Rule, as currently drafted, appears to attempt to supercede GAAP because the Proposed Rule is less rigorous and conflicts with current GAAP requirement. As previously indicated, we believe that based on the AICPA's due process performed in the most recent comprehensive review and revision of the Guide, the information currently required by GAAP provides meaningful information for readers of fund financial statements. Therefore, we believe that the Guide's required summarized schedule of investments should not be modified or eliminated unless the usefulness of the disclosures required by the schedule has diminished.
Additionally, we believe if the Proposed Rule is adopted as drafted, it will create two different and inconsistent, reporting requirements, likely creating additional burdens for preparers and confusion for preparers and users alike. Accordingly, we believe that a uniform presentation, based on the Guide's required summarized schedule of investments, would be in the best interest of financial statement preparers and users.
Separately, we agree with the SEC's proposal to require the inclusion of a complete schedule of investments in Form N-CSR and its distribution only to investors that request it. This proposal achieves a proper balance of removing the burden and cost of printing and delivering information of marginal relevance in general-distribution reports, while still making more detailed information available to those who are interested in it.
We appreciate the opportunity to submit our comments and would be pleased to discuss them with you at your convenience.
Mark Bielstein, Chair
Alan Latshaw, Chair