SEC Clarifies Fund Balance Sheet Issue

by Mike Godfrey, for LawAndTax-News.com, Washington

18 September 2008

The Securities and Exchange Commission’s (SEC's) Office of the Chief Accountant has this week clarified that bank support of money market mutual funds generally does not result in a requirement to present the fund on-balance sheet.

As a result of recent market events, it is possible that some money market funds could become exposed to declines in the credit worthiness of troubled assets. To protect investors’ principal investment in these funds, sponsoring financial institutions can provide various types of financial support.

The Office of the Chief Accountant has received questions related to whether the actions by these sponsoring financial institutions may result in on-balance sheet accounting for supported money market funds.

The Office of the Chief Accountant believes that on-balance sheet accounting for supported money market funds is not required if the sponsoring financial institution does not absorb the majority of the expected future risk associated with the money market fund’s assets, including interest rate, liquidity, credit and other relevant risks that are expected to impact the value of the money market fund assets.

However, SEC staff would expect adequate disclosure of the nature of the support provided.

In an unusual situation where the nature of the support results in exposing the sponsoring financial institution to a majority of the expected future risk, the Office of the Chief Accountant would encourage consultation on issues associated with presenting money market mutual funds in the financial statements, including consideration of acceptable presentation and disclosure models.

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