United States

SEC reporting changes for RICs and BDCs

FINANCIAL REPORTING INSIGHTS  | 

In August the SEC issued Release No. 33-10532, Disclosure Update and Simplification, which generally is effective for reports filed with the SEC on or after November 5, 2018. Among its many requirements, this Release includes the following reporting changes for registered investment companies (RICs) and business development companies (BDCs):

  • Regulation S-X Rule 6-09.3 has been amended to require RICs to present the total, rather than the components, of distributions to shareholders, except for tax return of capital distributions, which should be disclosed separately. The SEC staff has stated that distribution amounts disclosed in the prior-year statement of changes in net assets (SOC) may be retrospectively presented to conform with the current-year presentation resulting from the amended requirements, as long as a footnote is included in the SOC disclosing (a) the reason for changing the prior-year presentation and (b) the disaggregated prior-year distribution amounts. It also is permissible to include in the footnote the prior-year undistributed net investment income.

    It should be noted that the amendments to Rule 6-09.3 do not negate the requirement in paragraph 946-205-45-4a of the Financial Accounting Standards Board Accounting Standards Codification to present in the SOC (or disclose in the notes to the financial statements) for multiple class funds dividends and distributions paid to shareholders for each class.
  • With respect to distributable earnings of RICs:

           ˗The requirement in Rule 6-09.7 for parenthetical disclosure of undistributed net investment income in the SOC on a
             book basis has been deleted.

           ˗Rule 6-04.17 has been amended to require presentation of the total, rather than the components, of distributable
            earnings on the balance sheet.

  • Rule 6-03(c)(1)(i), which permitted the consolidation of financial statements of RICs and BDCs only with the financial statements of subsidiaries that are investment companies, has been deleted because the requirement in U.S. generally accepted accounting principles is broader and additionally requires consolidated financial statements when a reporting entity has a controlling financial interest in another entity.