2020 Investment Management Accounting Guide

A look at key issues

The standard setters made limited changes to accounting and financial reporting guidance in 2020, so industry participants focused mainly on adopting or preparing to adopt the major standards issued previously by the FASB.

COVID-19

After a novel coronavirus detected in China in December 2019 had spread rapidly around the globe, the World Health Organization declared the coronavirus disease 2019 (“COVID-19”) a pandemic in March 2020. The impacts of COVID-19 were far-reaching, and investment management firms were not immune. Turmoil in the financial markets marked much of 2020 as uncertainty reigned (heightened by both COVID-19 and the upcoming presidential election). Investment management firms had to navigate these turbulent markets while also dealing with the unprecedented issues of remote working arrangements and travel restrictions.

In response to COVID-19, the SEC issued several forms of regulatory relief. In August 2020, the SEC’s Office of Compliance Inspections and Examinations followed this up with a Risk Alert specific to broker-dealers and investment advisers. The SEC’s Division of Investment Management also prepared COVID-19 response FAQs to assist the industry.

Other Noteworthy Events

The SEC has also been busy in 2020 tackling a variety of issues that could have significant impacts on the investment management industry. Its activity has included the issuance of:

• A proposed rule on the good faith determinations of fair value that is designed to give boards and investment advisers of registered investment companies a consistent modern approach to the determination of fair value.
• A proposed rule on the disclosure framework for open-end management investment companies that, among other things, would require them to create new concise shareholder reports.
•  A final rule on business development company and closed-end fund offering reform that allows these entities to use certain securities offering rules that are already available to operating companies.
• Amendments to the definitions of ”accelerated filer” and “large accelerated filer” under Rule 12b-2 of the Securities Exchange Act of 1934 (including a specific provision for business development companies).
• A final rule and amendments under the Investment Company Act of 1940 that update the regulatory framework for funds that invest in other funds (“fund of funds” arrangements).