Accounts Notes: AUDIT OF MUTUAL FUNDS

Friday 25 March 2011

AUDIT OF MUTUAL FUNDS

Auditor to be appointed by trustees. Report also forwarded to trustees.
 Every asset, Management Company to keep proper books of accounts, records, etc. for each scheme.
 Audit Report :
(i) Obtained all information and explanation.
(ii) Balance Sheet and Revenue Accounts – True and fair view.
(iii) Accounts prepared in accordance with Ninth Schedule.
 Inspection and Audit :
SEBI may appoint one or more persons as inspecting officer for following purposes :
(i) Books of accounts maintained by Mutual Funds
(ii) Provision of Act complied with.
(iii) System procedures are adequate.
(iv) Provision of Act or rules violated.
(v) Investigate into complaints.
(vi) Affairs are in interest of investors.

 Requirement of Ninth schedule (Mutual funds)
(i) Mark all investments to market. Thus carry investments in B/s at MV.
(ii) Dividend / Bonus to be recognized on the date when share is quoted on Ex-div / Ex-Bonus basis on S/E. & not on date of declaration.
(iii) For interest bearing investments, interest income must be accrued on a day-to-day basis.
(iv) For determine holding cost of investment, ‘Average Cost’ method is to be followed.
(v) Transaction of purchase / sale of investment to be recognized as of trade date & not as of settlement date.
(vi) Where interest on investment has been accrued & hasn’t been received for 12 months beyond due date, provision, is to be made for income as accrued & no further accrual is made for such investment.
(vii) For open ended scheme, difference between SP & FV of unit should be credited / debited to reserve. FV being credited to capital A/c. also treatment of equalization A/c is to be taken care of.
(viii) Fore close-ended scheme, the par value of unit has to be adjusted to capital A/c & difference should be to reserves.
(ix) Cost of I should include brokerage, stamp & any other direct charge.
(x) Underwriting commission is recognized only if there is no development on the scheme. Where there is development, the full commission received should be reduced from the cost of investments.