Case 10 8 Ellie Enterprise
Case 10-8
Ellie Enterprises
An investment that is not one of the three traditional asset types such as stocks, bond and cash are considered as an alternative investment. “These types of investments include hedge funds, managed futures, real estate, commodities and derivative contracts.” (www.investopedia.com). These are subject to less regulation and use leverage and derivative instruments to optimize their returns. “In spite of many pensions and private endowments beginning to invest in these funds, the portion apportioned to them is still small usually less than 10%.” (www.investopedia.com). An alternative investment differs from publicly traded investments in three main ways:
The alternative assets can be purchased in a privately negotiated transaction.
Alternative investments are illiquid.
The investors invest as combined limited partners. Based on the characteristics and other related supporting information, I think two out of five investment funds would be considered as an alternative investment: Cloudy High-Yield Hedge Strategies and Cloudy Real Estate All Stars because
They are private investment vehicles.
They are not registered with the SEC and
The quoted market prices are not readily available.
Cloudy High-Yield Hedge Strategies: This consist of 10 high- yield hedge funds consisting of both private and public stocks that use leverage and derivative instruments to maximize the returns. Although, there is a portion of funds consisting of public stocks; the portion that is made up of private stocks would cause to characterize these as an alternative investments.
Cloudy Real Estate All Stars: This fund consists of primarily high-quality real estate properties. Although, 20 percent of the fund invested is in publicly traded real estate funds, treasuries, and other government securities, the majority (80 percent) of the fund is alternative in nature.
As per AU 330-11, the audit evidence doesn’t seem appropriate because it is not reliable and relevant
Ellie Enterprises
An investment that is not one of the three traditional asset types such as stocks, bond and cash are considered as an alternative investment. “These types of investments include hedge funds, managed futures, real estate, commodities and derivative contracts.” (www.investopedia.com). These are subject to less regulation and use leverage and derivative instruments to optimize their returns. “In spite of many pensions and private endowments beginning to invest in these funds, the portion apportioned to them is still small usually less than 10%.” (www.investopedia.com). An alternative investment differs from publicly traded investments in three main ways:
The alternative assets can be purchased in a privately negotiated transaction.
Alternative investments are illiquid.
The investors invest as combined limited partners. Based on the characteristics and other related supporting information, I think two out of five investment funds would be considered as an alternative investment: Cloudy High-Yield Hedge Strategies and Cloudy Real Estate All Stars because
They are private investment vehicles.
They are not registered with the SEC and
The quoted market prices are not readily available.
Cloudy High-Yield Hedge Strategies: This consist of 10 high- yield hedge funds consisting of both private and public stocks that use leverage and derivative instruments to maximize the returns. Although, there is a portion of funds consisting of public stocks; the portion that is made up of private stocks would cause to characterize these as an alternative investments.
Cloudy Real Estate All Stars: This fund consists of primarily high-quality real estate properties. Although, 20 percent of the fund invested is in publicly traded real estate funds, treasuries, and other government securities, the majority (80 percent) of the fund is alternative in nature.
As per AU 330-11, the audit evidence doesn’t seem appropriate because it is not reliable and relevant
Cited: (n.d.). Retrieved 11 10, 2013, from www.investopedia.com. Valuing and Reporting Plan Investment. (2011, July). Retrieved November 10, 2013, from www.aicpa.org.