I am really stumped on this. I am relatively new to non-compliance auditing and I am unsure on some things. I am doing an audit of investments and when I went to recalculate the accruals for cd's I could not come up with the same numbers on the gl. When I first asked why I was told that there was some sort of system thing and at maturity the system matches what is paid. My calculations were under.

The second answer is the one I am puzzled over. The cd's were purchased between April 08 and September 08. Most were for under 1 year. The controller stated that because this was leap year I should be figuring these out at 366 days not 365. She also stated that you counted both the purchase date and the sale date as days to get interest. I can see the 366 if Feb 29th is involved but not for the ones I looked at.

I have never counted the purchase date when I do accruals. When I did the maturities the purchase date was not counted and the maturities came out right.

Any help is appreciated.

Pick an example and give the dates and $.

As to whether you count the purchase date or maturity date, the # of days is the same. But, the opening includes the amount in the General Ledger that day. The system will accrue that day. When it is closed, it is not in the General Ledger and the system will not accrue.

Al

Yeah, if you can give us an actual example - using dates, dollar amounts, terms, interest rates, etc - we might be of some help.

I would refer to the CD disclosures also. They might provide some insight as to how daily interest is calculated.

I'll give two
#1 1,000,000 rate 2.85 purchased 9/15/08 accrued thru 9/30/08
my accrual 1,171.23 system 1,245.90 term 3 months
#2 1,000,000 rate 2.42 purchased 4/9/08 accrued thru 9/30/08
my accrual 11,602.74 system 11,637.18 term 6 months

Al - They are counting both the purchase and sale date not just one. I only counted one.

Thanks for your help.

On the first example, the accrual is based on 366 days which is the correct number of days in 2008. The daily accrual during 2008 is $77.86885. Im sure the system perameter defaults to actual days in the year.

The account was in the GL on 9/15 and 9/30, so both days should be included here. The day you would not count would be the maturity date as there is no accrual on that day. If you sold the account on 9/30, it would also go off the GL.

Presume an account opened 2/1 for 91 days. First, 3-months is ¼ of a year and 91 days is only 13-weeks. Three renewals of the 3-month CD will be a year and three renewals of the 91-day is only 364 days. If you don't use the same year base all year, the first and second 91-day interest payments will not be equal (as would be expected). 3-months is 5/1. That is 91-days in a leap year, but only 90 otherwise. The next maturity is 8/1 which is 91-days in all years and the following maturity (11/1) is 92-days.

Call (1-408-556-8376) if I have managed to totally confuse you.

Al

Al - Thank you for your answer. I don't understand why if the account is opened after Feb 29th you would do the calculation on 366. The year you calculate for would be an actual 365.

I will take your word on counting the day of depost as well as the actual days for accrual.

I appreciate your time.

KAT - I understand the first one - however, the second one has me confused.

If I use the information provided the cd was outstanding 175 days (22 days in April, 31 days in May, 30 days in June, 31 days in July, 31 days in August, and 30 days in September). I can come up with the figure that you came up with, using a 365 day year. (($1,000,000 x 2.42%)/365)*175 = $11,602.74. However, if you use a 366 day year you come up with another figure. (($1,000,000 X 2.42%)/366)*175 = $11,571.04 This does not match the accrual on the GL. However, if you substitute 176 days instead of 175 days in the above formula you arrive at a figure close to what is on the GL - $11,637.16. I am not certain how you would arrive at 176 days as the way I figured it you would have 175 days (counting both the purchase date and the sale date). Good luck!!!!!

When you verify the accrual for December (the account matures on the 15th), you will only count 14 days. You are verifying the accrual on the days open in the month.

Al

I would also check your truth in savings disclosure for number of days.

Just to ensure you are in compliance with number of days for intrest calculations.

Good luck

Thank you for your help. I am still confused over using the 366 days if you purchased after 2/29.

Al - Using your example if you change the date to 4/1 and go our for 1 year you would only come up with 365 days.

One more try on why 366. Lets look at a 4-year CD opened some time in 2006. It will be open for all of 2007, 2008 and 2009 and close on the maturity date in 2010.

Let's use $100,000 at 4.00%. Annual simple interest is $4,000. Ignore compounding, etc.

For 2007 and 2009, we need to accrue 1/365 of $4,000 per day. For 2008, we need to accrue 1/366 of $4,000 per day or we will pay more than $4,000 in interest.

Equality is a hot topic these days. It would be unfair (unequal) to treat a deposit made in January differently from a deposit made in March. We use 1/366 of the rate per day each day during 2008 and 1/365 of the rate per day in years that are not a leap year.

Al

They refer to the audit as an investment audit, so I took it that these were brokered CDs, not deposits KAT's bank was offering.

Thank you everyone. The cd's are brokered. There has been no problem with the deposited cd's.

Al thanks for taking the time to let me get everything straight.