Key Date Valuation 

Use

Key date valuation is the valuation of transactions or positions for accounting purposes at the market value on a specific key date.

Depending on which valuation principle is used, key date valuation includes creating or reversing provisions, posting write-ups and write-downs, as well as posting unrealized gains and losses. In Customizing, you can set up the rate types you want to use for valuation for each transaction type within a company code.

Real-time datafeed supplies the rates required for valuation.

For Foreign currency valuation this means using spot rates or forward rates, for example.

Features

In the Application area you can choose from the following fields:

·         Foreign Exchange

·         Money Market

·         Derivatives

This enables you to value different contract types in a single valuation run.

If the system recognizes the transaction as part of a hedging relationship, the valuation of the security component can be suppressed for interest rate instruments in special cases.

If you select the Hedge Accounting field and only one of the other checkboxes (Money Market or Derivatives), the system sets the other field automatically. This prevents swaps and money market transactions that are part of a hedging relationship from being valued separately.

Another consequence is that distribution flows are generated in addition to the valuation flows. The system takes into account whether the derivative being valued is part of a hedging relationship in accordance with FAS 133 / IAS39. To calculate distribution flows, it uses the rules defined in hedge management for the corresponding hedging relationships.

The total of all the distribution flows corresponds exactly to the total of all the valuation flows.

This field only affects the valuation of the following products:

·         Forward exchange transactions

·         Interest rate swaps

·         Cross-currency interest rate swaps

·         OTC options

For more information see the Hedge Management chapter in the General Functions section for the Transaction Manager.

Activities

To perform a key date valuation:

...

       1.      Choose Accounting ® Operative Valuation Area ® Valuation ® Run Key Date Valuation.

       2.      Enter your selection criteria in the following entry fields:

¡        Company Code

¡        Product Type

¡        Transaction Type

¡        Partner

¡        Due Date

¡        Transaction

¡        Active Status

¡        Portfolio

¡        Key Date (with today’s date as the default value)

       3.      You can simulate the key date valuation by selecting Test Run. The simulation run produces a valuation list but does not result in any postings or changes or to the database.

       4.      If you select the Post immediately indicator, the flows that are generated by the key date valuation are posted immediately. If not, you have to post these flows later using the corresponding posting functions.

       5.      If you want to include derivative instruments in the valuation, set the Derivatives indicator. At present, this is supported for valuation of OTC options.

       6.      Enter an NPV Type.

If you use the Market Risk Analyzer, this component acts as the data provider for the key date valuation. It supplies net present values for the NPV type specified here. The NPVs used are those which were stored in the system using the report program Saving OTC NPVs report. The NPV amount in display currency (from the Market Risk Analyzer) is converted to the currency of the option premium as part of the key date valuation run.

       7.      Choose Program  ® Execute.

       8.      The system displays the key date valuation.

In Germany for example, unrealized gains and provisions on the assets side are not disclosed. According to the Imparity principle (valuation for accounting purposes), unrealized losses have to be anticipated.