Assume you are anauditor, and your client is a public company with a large portfolio of available-for-sale equity securities. The client reports these securities at fair value, with unrealized gains and losses recognized in "other comprehensive income," an equity account, each period.

The client is preparing its quarterly financial statements and is again, for the second consecutive quarter, recording a decline in market value for several of the securities. These securities' fair values are now below their cost. From experience, you know that losses on available-for-sale securities must be recognized inearningsif (1) the securities are consideredimpaired(i.e., cost basis in excess of fair value) and (2) if the impairment is considered"other than temporary." Your client has asserted that it has the ability and intent to hold the securities, at least until their value recovers, and believes that the losses need only be recognized in OCI.

Locate the relevant accounting guidance, then draft an email (treat it as if it is an email) to your audit supervisor (Sean) that

• tells him about this issue,
• explains the general requirement regarding impairment of available-for-sale securities, describes your evaluation of whether the change in security values should be considered an other-than-temporary impairment (and therefore recognized in earnings), and
• suggests next steps.

It may be difficult to reach a definitive conclusion regarding whether impairment is required; however, it is

important that you make your supervisor aware of this issue and the relevant guidance. Consider all sources of

"required reading" in your response. Try to be succinct, while fully addressing the issue (try not to overwhelm your supervisor with an overly lengthy email).