Refer to the following excerpts from Fiddler Capital Management Incorporated's
1999 financial statements. You have been provided with the independent
auditor's report, financial statements, and Notes 1 and 2
Independent Auditors' Report Board of Directors
Fiddler Capital Management Inc. Edina, Minnesota
We have audited the accompanying statement of financial condition of Fiddler
Capital Management Inc. (the Company), wholly owned by HHS Companies, Inc., as
of September \(30,1999 .\) This financial statement is the responsi bility of
the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of financial condition
is free of material misstatement. An audit includes examining, on a test basis
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit of the statement of
financial condition provides a reasonable basis for our opinion.
In our opinion, such financial statement presents fairly, in all material
respects, the financial position of Fiddler Capital Management Inc. as of
September \(301999,\) in conformity with generally accepted accounting
principles.
Touch, Rose, \& Thorne March 1, 2000
1\. Summary of Significant Accounting Practices
Fiddler Capital Management Inc. (the Company) is a wholly owned subsidiary of
HHS Companies Inc. (the Parent) and is an investment advisor registered under
the Investment AdvisorsAct of \(1940 .\) The Company furnishes investment advice
to profit sharing and pension plans, financial institutions, corporate funds,
management investment companies, and individuals. As of September \(30,1999,\)
the Company managed over \(\$ 14\) billion of assets with approximately \(\$ 118\)
million managed by a foreign sub-advisor and \(\$ 848\) million managed by two
affiliates.
The Company is charged various expenses, including rent, by the Parent based
on specifically identified charges and other cost allocations. The effect of
these charges on retained earnings is not necessarily indicative of the costs
that would have been incurred had the Company operated independently.
Depreciation of furniture and equipment is provided using accelerated methods
over estimated useful lives of five or seven years.
The Company files consolidated federal and state income tax returns with its
Parent and affiliates. Payments are made to the Parent for income taxes
computed on pretax book income using the consolidated effective tax rate under
Accounting Principles Board Opinion No. 11. The Company adopted the provisions
of Financial Accounting Standards Board Statement No. \(109,\) Accounting for
Income Taxes, in fiscal year \(1997 .\) Adoption of the statement did not have a
material impact on the financial condition of the Company.
2\. Canadian Accounting Principles
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States which, in the case of the
Company, conform in all material respects with those in Canada.
Required
a. Identify what is missing in these excerpts. What items would you normally
expect to find in an annual report that Fiddler omitted? Comment on why
Fiddler may have chosen to omit these items.
b. Review Note 1 and discuss each item in your own words.
c. Write a short memo responding to Note \(2,\) describing the ways that you
agree and disagree with the assertions in Note \(2,\) regarding generally
accepted accounting principles in the United States. Ignore the reference to
Canadian accounting principles.
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