As a member of a corporate treasury department, we are on the verge of investing in Prime Money Market Funds. I am seeking clarification on how changes in the Floating Net Asset Value (FNAV) should be reported under U.S. Securities and Exchange Commission (SEC) rules. My attempts to locate relevant guidance on the SEC's official website have so far been unsuccessful.

In our historical practice, we have recorded fluctuations in the FNAV—whether positive or negative—as either interest income or interest expense. However, I am not fully convinced that this treatment aligns with proper accounting standards. I would appreciate any insights from peers or experts regarding the correct reporting methodology.

The core question pertains to the regulatory and accounting treatment of FNAV changes, particularly in the context of Prime Money Market Funds, which are subject to specific SEC rules under Rule 2a-7 of the Investment Company Act of 1940. While the SEC has provided extensive guidance on fund valuation and pricing, the reporting obligations for investors—especially corporate treasuries—may not be explicitly detailed on their public-facing resources.

Given the lack of clear SEC guidance, it is prudent to consider alternative authoritative sources, such as the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topics related to investments and income recognition. The classification of FNAV changes as interest income or expense may not be appropriate if such changes are more akin to unrealized gains or losses on investment securities.

I would welcome any practical examples or references to SEC staff guidance, no-action letters, or industry best practices that address this specific issue. If any reader has encountered a similar situation, please share how your organization has handled the reporting of FNAV changes, including any adjustments made to align with GAAP or IFRS.

Until further clarity is obtained, we are considering whether to treat FNAV changes as a component of other comprehensive income or as a direct adjustment to the carrying value of the investment, rather than as interest income or expense. This approach might better reflect the economic substance of the change, but we remain open to correction based on authoritative input.

In summary, the question remains: What is the SEC-mandated or generally accepted accounting treatment for changes in the Floating NAV of Prime Money Market Funds, and how should such changes be reported in financial statements? Any guidance or references would be highly valued.