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Credit valuation adjustments for derivative contracts (IFRS 13)
Challenging conditions following the economic crisis and the introduction of IFRS 13 Fair Value Measurement highlighted the need to reflect credit risk appropriately in derivative contracts.
This publication provides insight into some of the methods used in practice to determine valuation adjustments for credit risk on all derivatives measured at fair value, except those for which a quoted price in an active market is available (i.e., over-the-counter (OTC) derivatives). In addition, we briefly discuss some of the practical implications including data challenges, portfolio considerations and how these adjustments may affect hedge accounting.
Issues and questions are likely to be raised in the future as entities continue to apply IFRS 13 Fair Value Measurement. In addition, various groups, such as the International Valuation Standards Council, are developing guidance in respect of credit and debit valuation adjustments. We encourage readers to closely monitor developments.