Accountants' reports on examinations of securities and similar investments under the Investment Company Act;

              Statements on Auditing Procedure
December 1941
No. 9
•
Issued by the
Accountants' Reports on Ex-aminations of Securities and Similar Investments under the Investment Company Act
Committee on Auditing Procedure, American Institute of Accountants, 13 East 41st Street, New York, N. Y.
Copyright 1942 by American Institute of Accountants
THE SECURITIES and Exchange Commission has issued Release No. 27 in its Accounting Series containing an opinion by the chief account-ant as to the nature of the examination and the report by the independent public accountants required by paragraph (4) of rule N-17F-1 and by paragraph (7) of rule N-17F-2 promulgated under the Investment Company Act of 1940. A copy of this release is appended hereto for convenient reference.
Attention is directed to the chief accountant's interpretation of the requirements of rule N-17F-2 for a "complete examination" of the securities and similar investments. It will be noted that attention is called to the necessity, in addition to making physical examination or confirmation of the securities and reconciling them with the books, of making "an appropriate examination of the investment accounts and supporting records, including an adequate check or analysis of the security transactions since the last examination and the entries per-taining thereto."
What constitutes an "appropriate examination" and "an adequate check or analysis" will, as in almost all cases involving the extent of auditing procedures, vary with the circumstances of the particular situation. The examination required by the rule is a partial one, re-lating solely to the securities and similar investments. While it cannot be expected to be as conclusive as a more extended examination, there may be cases where the accountant will consider that an adequate examination of the investments necessitates an examination of the intervening cash transactions and confirmation of the bank balances at the date as of which the securities and investments are inspected. Circumstances which would be controlling might be the period which had elapsed since the last examination, the activity of the portfolio, the frequency with which regular examinations of the accounts are made and the degree of effectiveness of the bookkeeping methods of the com-pany as observed by the accountant during previous examinations.
The release sets forth the requirements for the accountant's report, and for the assistance of practicing accountants the committee has
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