ASC

ASC 720-946

Financial Services—Investment Companies

720 Other Expenses

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In brief

AdvancedRecognitionIndustry-specificSubsequent measurement

This Subtopic tells investment advisers and mutual fund distributors how to account for costs incurred to distribute fund shares. The general rule: if the adviser does not receive both 12b-1 fees and contingent-deferred sales fees, the distribution/offering costs fail the definition of an asset and must be expensed as incurred (with initial offering costs treated as start-up costs under Subtopic 720-15). Distributors of no-front-end-load mutual funds instead defer and amortize incremental direct costs and expense indirect costs as incurred.

Key points (7)
  • The Subtopic has its own discrete scope, separate from the pervasive scope of Section 946-10-15, and applies to all investment advisers and distributors within the scope of either Subtopic 946-10 or Subtopic 940-10 (720-946-15-1 through 15-2).
  • Advisers reimbursed through both 12b-1 fees and contingent-deferred sales fees follow paragraph 946-720-25-4 and are outside the scope of 720-946-25-2 through 25-3 (720-946-25-1).
  • When an investment adviser does not receive both 12b-1 fees and contingent-deferred sales fees, expected benefits from distribution expenditures do not meet the FASB Concepts Statement No. 6 definition of an asset, so those offering costs are expensed as incurred (720-946-25-2).
  • Initial offering costs paid by an adviser that does not receive both fee types are start-up costs accounted for under Subtopic 720-15 (720-946-25-2).
  • The expense-as-incurred guidance also applies to Rule 12b-1 distribution plans of open-end investment companies; however, closed-end interval funds and unregistered funds with fees/charges substantially the same as 12b-1 fees and contingent-deferred sales fees must defer and amortize incremental direct costs in a manner similar to 946-720-25-4 (720-946-25-3).
  • Distributors of mutual funds without a front-end load defer and amortize incremental direct costs and expense indirect costs when incurred (720-946-25-4).
  • Amended guidance effective for periods beginning after December 16, 2024 (public) / December 16, 2025 (nonpublic), with transition guidance in 105-10-65-9, restates the rule as costs incurred in connection with distribution of fund shares being expensed as incurred (720-946-25-2).

For students. The pivot point is whether the adviser receives BOTH 12b-1 fees and contingent-deferred sales fees — only then is deferral and amortization of incremental direct costs appropriate; otherwise everything is expensed as incurred. Students often wrongly assume any fund distribution cost can be capitalized because future fee revenue is expected, but expected benefits alone do not create an asset under Concepts Statement No. 6.

12b-1 feescontingent-deferred sales feesoffering costsdistribution costsincremental direct costsstart-up costsfront-end loaddefinition of an asset

Machine-generated study aid for ASC 720-946. Check the source paragraphs below.

720-946-00Status

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720-946-05Overview and Background

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720-946-05-1
This Subtopic addresses:
  1. a
    Investment adviser's offering costs when both 12b-1 fees and contingent-deferred sales fees are not received
  2. b
    Subparagraph superseded by Accounting Standards Update No. 2014-09.
  3. c
    Distribution costs for mutual funds with no front-end sales fee.

720-946-15Scope and Scope Exceptions

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Overall Guidance

720-946-15-1
This Subtopic has its own discrete scope, which is separate and distinct from the pervasive scope for this Topic as outlined in Section 946-10-15.

Entities

720-946-15-2
The guidance in this Subtopic applies to all investment advisers and distributors within the scope of either the Overall Subtopic (see Section 946-10-15) or Subtopic 940-10 (see Section 940-10-15).

720-946-25Recognition

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Investment Adviser's Offering Costs When both 12b-1 Fees and Contingent-Deferred Sales Fees Are Not Received

720-946-25-1
Paragraph 946-720-25-4 provides guidance on accounting by investment advisers who are reimbursed, for offering costs paid, through both 12b-1 fees and contingent-deferred sales fees. Accordingly, the accounting by those investment advisers for offering costs are outside the scope of the guidance in paragraphs
946-720-25-2 through 25-3
.
720-946-25-2
Benefits expected from the expenditures paid by an investment adviser in connection with the distribution of shares of a fund in circumstances in which the investment adviser does not receive both 12b-1 fees and contingent-deferred sales fees do not meet the definition of an asset of the investment adviser as provided in FASB Concepts Statement No. 6, Elements of Financial Statements. Accordingly, such offering costs paid by the investment adviser shall be expensed as incurred. Initial offering costs paid by an investment adviser that does not receive both 12b-1 fees and contingent-deferred sales fees are start-up costs of the investment adviser, which should be accounted for in accordance with Subtopic 720-15.
Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance:
105-10-65-9 Costs incurred by an investment adviser in connection with the distribution of shares of a fund in circumstances in which the investment adviser does not receive both 12b-1 fees and contingent-deferred sales fees shall be expensed as incurred. Initial offering costs paid by an investment adviser that does not receive both 12b-1 fees and contingent-deferred sales fees are start-up costs of the investment adviser, which should be accounted for in accordance with Subtopic 720-15.

Distribution Costs for Funds

720-946-25-3
The guidance in paragraph 946-720-25-2 applies also to distribution plans of open-end investment companies permitted under Rule 12b-1. Some closed-end interval funds incur distribution-related fees (similar to 12b-1 fees) and impose early withdrawal charges (similar to contingent-deferred sales fees) pursuant to exemptive orders issued under the Investment Company Act of 1940. In addition, certain funds not subject to regulation under the Investment Company Act of 1940 also may incur fees and impose charges that are substantially the same as 12b-1 fees and contingent-deferred sales fees, respectively. In those instances, an entity shall defer and amortize the incremental direct costs and shall account for offering costs incurred for distribution of those funds in a manner similar to the accounting specified in paragraph 946-720-25-4.
720-946-25-4
Distributors of mutual funds that do not have a front-end load shall defer and amortize the incremental direct costs and shall expense the indirect costs when incurred.

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