The Securities and Exchange Commission issued a statement clarifying the accounting treatment for money market mutual funds amid the growing turmoil in the financial markets.
The SEC's Office of the Chief Accountant said that bank support of money market mutual funds generally does not result in a requirement to present the fund on the balance sheet. Some money market funds have become exposed to declines in the credit worthiness of some troubled assets, noted the SEC. To protect investors’ principal investment in these funds, some sponsoring financial institutions have stepped in to provide various types of financial support.
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 fair value of the money market fund assets. However, the staff expects adequate disclosure of the nature of the support to be 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 encourages 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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