Investments and Avoiding Management Letter Comments

A common audit comment given to organizations is in regards to recording investment activity. An organization should track the changes in the investment accounts monthly by each individual investment that makes up each account. After the changes are compiled in a spreadsheet, the overall change should be recorded monthly in the accounting records.

Below are some common mistakes related to recording the investment activity and suggestions for how to fix them:

• A realized gain is not computed correctly; just because a gain/loss number is provided by the investment broker does not mean it is the one you need to use. Always recalculate!
• Untracked cash or money market activity; this needs to be tracked as well. It contributes to the overall activity in the account.
• Reinvested dividends; these increase the value of the stocks not the amount of cash in your account and should be recorded appropriately.

Below is a sample roll-forward format that can be used to track your investments:

	Beg. Bal.	Purchases	Sales	Realized	Fees	Reinvested Interest/ Dividends	Unrealized	Ending Balance	Ending Balance per Statement	Check Figure
Cash	100	500	-50					550	550	0
Stock	1,500						20	1,520	1,520	0
Bond	2,000	50				10	10	2,070	2,070	0
Mutual Fund	3,000		-500	45	-5		-5	2,535	2,535	0
Total	6,600	550	-550	45	-5	10	25	6,675	6,675	0

You should complete the roll-forward each month for each individual investment. The check figure should always be zero so that the balance per your roll-forward equals the balance per the statement. The entry for the month of activity shown above would be:

	Debit	Credit
Investments	75
Realized Gain/Loss		45
Unrealized Gain/Loss		25
Interest/Dividends		10
Fees	5

Below is an example of a table used to calculate a realized gain:

Sales	# of Shares Sold	Sales Price per Share	Price per Share in Prior Month	Realized
-500	10	50	45.50	45

• To find the sales price per share, you would divide the dollar value of the sales by the number of shares sold.
• To find the price per share in the prior month, take the ending value of the investment from the previous month divided by the number of shares held in the prior month. From the example above, that would be a prior-month ending balance of $4,550 spread over 100 shares.
• To calculate the realized gain/loss, take the sales price per share and subtract the price per share in the prior month. Multiply this difference by the number of shares sold. You have a gain if the sales price is higher than the previous month’s price per share.

An unrealized gain is the change in value each month on an investment that hasn’t been sold.

Gain/loss on donated stocks should be recognized based on the value of the stock when you receive it, not the original value of the stock when the donor purchased it.

Please don’t feel overwhelmed. Once you get the hang of it, your monthly reconciliation will become a breeze. If you need help setting this up, please feel free to contact Aprio’s Assurance team. Part of our job is to help you help yourself.