On May 15, 2018, the Journal of Accountancy announced the issuance of the working draft of the American Institute of Certified Public Accountants (AICPA) Accounting and Valuation Guide, "Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies." As the accompanying article states, the working draft "provides the PE/VC Task Force's perceived best practices of the valuation of investments in equity and debt instruments, and certain aspects of the accounting for those investments." The Introduction to the working draft states the intention "to assist various parties... in understanding and applying the principles of FASB ASC 820 to portfolio company investments."
The draft has been issued in two parts. Part I consists of 14 chapters dealing with key topics such as: determination of the unit of account; overview of valuation approaches; valuation of debt instruments; valuation of equity interests in both simple and complex capital structures; and calibration. The final two chapters focus on special topics of interest, and frequently asked questions.
Part II contains reference material, followed by 15 case studies that illustrate many of the concepts contained in Part I. Given the size of the working draft and the range of topics covered, professionals may particularly benefit from the Introduction in Part I, including the section entitled "Guide to the Guide" that points out areas that may be of specific interest to certain users- investment company managers; venture capital fund managers; accountants and auditors; and valuation specialists.
The AICPA has requested that those interested in providing comments do so by August 15, 2018.
"Valuation of portfolio-company investments addressed in AICPA working draft"The AICPA issued a working draft of an Accounting and Valuation Guide on Tuesday that provides guidance for financial reporting purposes regarding the accounting for and valuation of portfolio company investments of venture capital and private-equity funds and other investment companies within the scope of FASB Accounting Standards Codification (ASC) 946, Financial Services — Investment Companies.This guide may also be useful for noninvestment companies that make similar investments. The AICPA PE/VC Task Force and AICPA staff developed the working draft, which was reviewed and approved by the AICPA Financial Reporting Executive Committee."