Fair-value accounting for CVA

Fair-value accounting for CVA

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 footnote 2).

Despite this, it is possible to determine the appropriate accounting treatment by considering

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