Process Impairments by Price and FX Rate

Owned by Nancy Cohn (Deactivated)
Last updated: Dec 01, 2023
3 min read

In the Book Impairment Adjustment panel, you can process an impairment for one or more entities to write up or write down investments based on price and/or foreign exchange rate. You can impair a holding based on specific lot or by position. You must enter a separate impairment transaction for each accounting basis where you want to impair the lot or position.

In the Book Impairment Adjustment panel, use of the Impair by Option set to Both Price and FX is intended for scenarios when the security was impaired both by price and when the base currency was significantly devalued and resulted in a currency loss. If the FX rate you input results in a currency gain, the Impair by Both Price and FX option does not take into account the FX rate you input.  Instead, the system proportionally reduces the amortized cost base currency by the same amount as the amortized cost local currency. For example, if the cost amortized local amount is reduced by 50%, the cost amortized base amount also is reduced by 50%. Proportionally reducing the base amortized cost in this manner takes into account the blended FX rate, which looks to all known FX rates from when the position was opened through the date of the impairment.

To process an impairment by price and FX rate:

  1. In Accounting Center, in the left navigation pane, click Transactions > Adjustments > Cost Adjustments > Book Impairment Adjustment.
    You see the Book Impairment Adjustment panel.

  2. In the Impairment Type section, click the Impairment Processing Flag field and select a value of Position or Lot.

  3. In the Entity Information section, choose one or more entities and a single accounting basis.
    When you impair at the position level, you can choose one, all, or a set of entities in an entity partition, entity group, or entity list. When you impair at the lot level, you can choose a single entity/basis.

  4. In the Security Information section, click the Impair by Option field and select a value of Both Price and FX.

  5. If you impair at the position level and select multiple entities, click the Base Currency field in the Entity Information section and select the base currency to use for the impairment.
    You cannot choose the base currency until you indicate that you are impairing by FX. Otherwise, if you select a single entity, you see the Base Currency field value for the selected entity.

  6. Complete the remaining options on the Book Impairment Adjustment panel.
    You must identify the impairment reason and direction of the write-off, indicate if the position/lot is long/short, and identify the security and open lot, as appropriate. You can specify the impairment price in the FMV Price field or in the Credit Price and Noncredit Price fields. You can identify the impairment rate in the Local to Base FX Rate field, Credit Price field, and Noncredit Price field, as appropriate. You can then specify the cost offset account.

  7. Click Submit.
    The system calculates the impairment amount or credit and non-credit loss, as applicable, for the selected lot or for each open lot held within the selected position, and posts the related accounting entries. The system adjusts the book value/current amortized cost of all relevant open lots held for the selected positions by the calculated impairment or credit loss and/or for statutory purposes non-credit loss.

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