The American Institute of CPAs’ Financial Reporting Executive Committee (FinREC) has released a working draft of the AICPA Accounting and Valuation Guide Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies.
The guide was designed to offer non-authoritative guidance and illustrations for preparers of financial statements, independent auditors, and valuation specialists regarding the accounting for and valuation of portfolio company investments held by investment companies within the scope of the Financial Accounting Standards Board (FASB) ASC 946 (including private equity funds, venture capital funds, hedge funds, and business development companies).
“This guide addresses many accounting and valuation issues that have emerged over time to assist investment companies in addressing the challenges in estimating fair value of these investments,” the AICPA states.
This guide may also be useful for non-investment companies, such as corporate venture capital groups or pension funds, which make investments in similar types of portfolio companies and pursue similar strategies. But the numerous and varied aspects of these non-investment entities were not considered or contemplated in the preparation of the guide.
Part I of the working draft addresses Chapters 1-14 and the following:
- Identifies certain requirements presented in the FASB Accounting Standards Codification (ASC).
- Describes FinREC’s understanding of prevalent or sole practice concerning certain issues. The guide also may indicate that FinREC expresses a preference for the prevalent or sole practice, or it may indicate that FinREC expresses a preference for another practice that is not the prevalent or sole practice; alternatively, FinREC may express no view on the matter.
- Identifies certain other, but not necessarily all, practices concerning certain accounting issues without expressing FinREC’s views on them.
- Provides guidance that has been supported by FinREC on the accounting, reporting, or disclosure treatment of transactions or events that are not set forth in FASB ASC.
Part II of the working draft includes Appendices A-C and the glossary.