Fair-value accounting for CVA
Banks are required to recognise fair-value adjustments for credit value adjustment under International Financial Reporting Standards, but the rules are extremely complex. In the first of a two-part article, Dirk Schubert explains the boundary conditions that need to be considered
Banks are required to measure the fair value of over-the-counter derivatives trades under International Accounting Standard (IAS) 39, which includes the recognition of fair-value adjustments due to counterparty risk. Accounting rules are clear: the measurement and recognition of credit value adjustment (CVA) is mandatory (see footnote 1). But IAS 39 does not specify how to evaluate CVA (see
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