Fund of Fund Investment audit

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B. vignesh (Querist)
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20 June 2024 Please any one clarify that as per US GAAP we have to disclose the investments details if the value of the investment is 5% more than net worth or partners capital in the financial statement. My doubt is In case the organization is investment company or firm engaged in fund of fund, whether it is enough to show the fund in which such company have invested and the value is more than 5% of the net worth or partners capital or is it necessary to show the investment in which fund that we have invested, if it's so how to calculate the 5%,

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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07 July 2024 Under US GAAP (Generally Accepted Accounting Principles), disclosure requirements for investments depend on the nature of the entity and the specific circumstances. Here are some general principles and considerations regarding the disclosure of investments:

1. **Investment Company vs. Operating Company**:
- **Investment Company**: If your organization qualifies as an investment company under US GAAP, it typically holds investments for the purpose of generating returns from capital appreciation, dividends, or interest. Investment companies often have specific disclosure requirements related to their investments.
- **Operating Company**: If your organization is not primarily an investment company but has investments as part of its operations (such as a fund of funds), the disclosure requirements may differ.

2. **Disclosure Threshold (5% Rule)**:
- The 5% threshold generally refers to significant investments where the carrying amount of an individual investment exceeds 5% of either:
- **Net Worth**: This is the total assets minus total liabilities.
- **Partners' Capital**: This refers to the equity or capital contributed by partners in a partnership structure.

3. **Calculation and Disclosure**:
- If an investment's carrying amount exceeds 5% of net worth or partners' capital, it usually triggers a disclosure requirement in the financial statements.
- The disclosure typically includes details such as the name of the investee, the nature of the investment (e.g., equity, debt), the carrying amount, and other relevant information to help users of the financial statements understand the nature and risks associated with these investments.

4. **Fund of Funds Scenario**:
- In the case of a fund of funds or similar investment structure, where your organization invests in other funds:
- You generally need to disclose the investments in the underlying funds if they individually exceed the 5% threshold of net worth or partners' capital.
- The 5% threshold is calculated based on the carrying value of the investment relative to your organization's net worth or partners' capital.

5. **Compliance and Interpretation**:
- Compliance with US GAAP ensures that financial statements provide transparent and meaningful information to stakeholders. It's essential to interpret the disclosure requirements in the context of your organization's specific activities and the nature of its investments.
- Professional judgment and consultation with an accounting expert familiar with US GAAP may be necessary to ensure accurate application of disclosure rules.

If your organization is uncertain about the application of these rules or needs guidance on specific disclosure requirements under US GAAP, consulting with a qualified accountant or financial advisor who specializes in US GAAP reporting can provide tailored advice based on your organization's unique circumstances.