Investment Management Accounting and Financial Reporting ...
E. Upshaw Investment Accounting
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Investment Accounting Presented by Emily Upshaw, CPA Actively Investing and Properly Documenting
Transcript of E. Upshaw Investment Accounting
Investment Accounting
Presented by Emily Upshaw, CPA
Actively Investing and Properly Documenting
Objectives
• Discuss Actively Investing
• Review Basic PFIA Investments
• Review Accounting for Basic Investments
Actively Investing
• Invest Methodically
• Keep it “Simple”
• Keep it “Rolling”
• Monitor Collateral
Optimize “Cash”
• December 2010
• ECR = 1.35%
• MMA = 0.41%
• LGIP = 0.20%
• October 2019
• ECR = 0.75%
• MMA = 2.10%
• LGIP = 1.90%
Cash Flows
• Quick, High Level
• Tax Revenue, Debt Payment, Payroll
• Detailed, In-Depth
• Monthly, Weekly
Cash Flow Investment PlanCash equivalents after proposed maturities approx $45 million
Strategic Choices for Investment Plan
• Market Outlook
• Essential vs. Nonessential Funds
• Investment Type
• Rates
2256.009 – Obligations of, or Guaranteed by Governmental Entities.
• Essentially:
• Government/Agency Issued Debt
• Municipal Bonds
• FDIC Insured Deposits
• Common Examples
2256.009 – Accounting Example:
• Trade Ticket Information
CUSIP 3135G0R39Maturity Date 10/24/2019Trade Date 1/9/2019Settlement Date 1/10/2019Par Value $5,000,000Purchase Price $98.7509Coupon 1.00%Coupon Frequency Semi‐AnnualYield 2.609003%Day Count 30/360
FNMA 1 10/24/19 Corp
Purchased at a Discount
• Purchase Price – purchase accrued interest
• Accretion – straight line
÷
+Principal 4,937,545$ <Principal amount purchasedAccrued Interest (purchased) 10,556$ <Accrued interest purchased from sellerTotal 4,948,101$ <Total cash paid for investment
Amount of Discount 62,455$ <Par value less the principal purchasedNumber of Days to Maturity 287 <Based on 365‐day yearDaily Accretion 218$
Record in January
To record purchase:FNMA Investment 4,937,545$ Accrued Interest ‐ Receivable 10,556$ Cash 4,948,101$
Month end to record interest:Accrued Interest ‐ Receivable 2,917$ Interest Income 2,917$ Month end to record accretion:FNMA Investment 4,570$ Interest Income 4,570$
1/10/2019
1/31/2019
Record in February and MarchMonth end to record interest:Accrued Interest ‐ Receivable 3,750$ Interest Income 3,750$ Month end to record accretion:FNMA Investment 6,093$ Interest Income 6,093$
Month end to record interest:Accrued Interest ‐ Receivable 4,583$ Interest Income 4,583$ Month end to record accretion:FNMA Investment 6,746$ Interest Income 6,746$
2/28/2019
3/31/2019
Record in April (coupon occurs)
To record interest earned:Accrued Interest ‐ Receivable 3,194$ Interest Income 3,194$ To record interest received:Cash 25,000$ Accrued Interest ‐ Receivable 25,000$
Month end to record accretion:FNMA Investment 6,528$ Interest Income 6,528$ Month end to record interest:Accrued Interest ‐ Receivable 833$ Interest Income 833$
4/30/2019
4/24/2019
Record in May-September
To record interest earned:Accrued Interest ‐ Receivable 4,167$ Interest Income 4,167$ Month end to record accretion:FNMA Investment 6,746$ Interest Income 6,746$
To record interest earned:Accrued Interest ‐ Receivable 4,167$ Interest Income 4,167$ Month end to record accretion:FNMA Investment 6,528$ Interest Income 6,528$
31‐day month
30‐day month
Record in October (maturity occurs)
To record interest earned:Accrued Interest ‐ Receivable 3,333$ Interest Income 3,333$ To record interest received:Cash 25,000$ Accrued Interest ‐ Receivable 25,000$ To record final accretion:FNMA Investment 5,223$ Interest Income 5,223$ To record at maturity:Cash 5,000,000$ FNMA Investment 5,000,000$
10/24/2019
Documentation
• Custodial/Safekeeping Agreement
• Trade Ticket
• Wire Instructions
• Reports from Custodian/Safekeeping Agent
2256.010 – Certificates of Deposit and Share Certificates.
• Essentially:
• Direct Placed CDs
• CD Spread Program
• Brokered CDs
2256.010 – Accounting Example
Record Purchase in May
To record purchase:CD Investment 5,167,402$ Cash 5,167,402$
5/1/2019
Months 1 and 2 for Interest Accrued
To record interest:Accrued Interest ‐ Receivable 11,630$ Interest Income 11,630$
6/1/2019
To record interest:Accrued Interest ‐ Receivable 11,255$ Interest Income 11,255$
7/1/2019
Month 3 for Quarterly Interest Received
• Remember to compound quarterly!
To record interest:Accrued Interest ‐ Receivable 11,630$ Interest Income 11,630$ To record interest received:CD Investment 34,515$ Accrued Interest ‐ Receivable 34,515$
8/1/2019
Continue Pattern Until Maturity Month 18
To record interest:Accrued Interest ‐ Receivable 12,021$ Interest Income 12,021$ To record interest received:CD Investment 35,676$ Accrued Interest ‐ Receivable 35,676$ To record maturity:Cash $5,376,820 CD Investment 5,376,820$
11/1/2020
Documentation – Direct Placed CD
• Depository Agreement
• FIRREA Resolution (Securities > FDIC)
• Collateral
• CD Receipt
• Account Statements
Documentation
• Brokered CD
• Similar to Security
• CD Spread Program
• Program Agreement – Bank Exclusion List
2256.014 – Mutual Funds.
• Money Market Mutual Funds
• Easy peasy – record interest earned each month
• Amortized cost
• Same, easy peasy
2256.016 – Investment Pools.
Record Deposit and Interest Received
To record purchase:Sweep/LGIP Account 5,000,000$ Cash 5,000,000$
To record interest:Sweep/LGIP Account 9,863$ Interest Income 9,863$
6/1/2019
6/30/2019
2256.011 – Repurchase Agreements.
• Dealer sells securities to the County and buys
them back at an agreed upon price, or
• County buys securities from Dealer and sells them
back at an agreed upon price (Reverse Repo)
• Collateralized
2256.0115 – Securities Lending Program.
• Securities from a County’s portfolio are loaned to
an investor in exchange for collateral, fees and
eventual return of the securities
• For LARGE entities
2256.012 – Banker’s Acceptance.
• Short-term debt issued by a company,
guaranteed by a bank
• Specified amount due at specified date
• Secondary market
2256.013 – Commercial Paper.
• Short-term debt issued by a company
• Unsecured
• Should be highly rated
2256.015 – Guaranteed Investment Contracts.
• Guaranteed rate of return in exchange for deposit
for a certain period of time
• Authorized for bond proceeds
• Cannot exceed 5 years
