Oct 24, 2016
From the Financial Reporting View
SEC rule amendments that were effective October 14, 2016 require institutional money market funds to use a floating net asset value (NAV) rather than a stable NAV, allow funds to temporarily suspend or gate redemptions, and require non-governmental funds to impose liquidity fees in some instances.
The SEC rule release clarifies that, under normal circumstances, an investment in a money market fund qualifies as a cash equivalent under FASB ASC Topic 305, Cash and Cash Equivalents. This includes money market funds that use a floating NAV or have the ability to impose a fee or gate.
Entities that invest in money market funds may need to classify their investments in these funds as investments rather than cash equivalents if events give rise to credit and liquidity issues including:
- The money market fund’s NAV changes by more than an insignificant amount;
- The money market fund imposes liquidity fees; or
- The money market fund temporarily suspends or gates redemptions.
Because institutional money market funds must now report a floating NAV, entities that invest in them will need to recognize unrealized gains and losses related to changes in NAV either through earnings (e.g., for trading securities) or through other comprehensive income (e.g., for available-for-sale securities).