At the present time, sorting out what the software posted to the cost column of the cost basis balance sheet's unrealized gains and losses consumes excessive amounts of time.

Year end reconciliations are a nightmare when an entity with 1,000 securities, updated monthly, plus long term assets with multiple transactions, and the system has posted one or more entries to unrealized gains. It is almost impossible to find an erroneous system generated posting in the unrealized gains reports with that much data.

Is this to audit the activity for Unrealized Gains/Losses or the activity for an investment?
Is finding why the "cost basis" for Unrealized Gains/Losses is not zero the problem?

So you need an audit on the changes to cost basis, market value and unrealized gains/losses for all investments.

The following are the common reasons our office has found for why the balance is not zero:

1) Updating starting balances when asset activity has already occured in the new year. (Balance sheet starting balances reports only report fair market value.) There are is a second problem problem with updating starting balances. If there is no change to the fair market value of an asset in the prior year, the cost basis balance will not be updated. Furthermore, this problem is not reflected in the unrealized gains reports because there was no current activity involved.

2) Partial sales that have data input errors. I have found that when the original data is entered, if any of the numbers are changed during the entry process there almost always is a problem with unrealized gains.

3) Changing data entered for an asset without completely deleting the entry first

4) Entries to long term assets without recording a purchase, sale or return of capital. Frequently, the data input clerk does not realize that the asset sale or acquisition questions should automatically occur on these transactions.

The most frequent error in the input is that the data entry clerk uses a payor/payee that automatically defaults to an income or expense account. The clerk changes the account and does not realize that there is more to the entry. There is no posting to unrealized gains but the it does affect the cost basis for unrealized gains.

5) Software confusion when the data entry clerk is faster than the system. Slowing down and making the entry correct almost always results in an auto posting to unrealized gains that does not appear in the entry. It is extremely difficult to find the auto posting on these errors.

6) Entering an asset transaction in a prior month when the asset's prices has already been updated in a subsequent month. This one, with much difficulty can be identified and fished out of the unrealized gains transactions.

These are the most common problems in our office. However, there are occasions when I cannot identify what happened so I can't find the reason for the cost basis.

However, as you point out, the system does NOT have a similar report for cost basis. Thus it is sometimes very difficult to figure out what changes have been made to cost basis.

The ideal solution would be to provide a Transactions by Account type of report for the cost basis of any investment. We may include this in a future version of the program.

This is more complicated than the report for account balance since direct chanages can be made to cost basis on the Asset & Liability Info screen. These kinds of changes would have to show up on the report as a lump figure "changes in cost basis" rather than as a transaction.

In the meantime, take a look at the Portfolio Activity Report. Although it does not contain a complete audit trail of cost basis, this report does contain much useful information.

TIP: For purposes of a complete audit trail, it is much better to make changes to cost basis through buy, sell, and valuation transactions rather than with a direct entry to the A&L screen.

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Renée Trudeau
Financial Navigator Int'l
Manager, Technical Services