Hedge accounting for Corporates

IFRS 13 defines the standards for fair-value measurements of derivatives used in hedge accounting.

From 1 jan 2013 fair-value calculations must include Credit Valuation Adjustments (CVA and DVA valuations adjustments) to account for nonperformance risk.

IFRS 9 (replacement for IAS 39), with initial start date of 1 Jan 2015 specifies hedge accounting rules.

You can simplify youw hedge accounting calculations with the use of PriceTools for fair value (mark-to-market) measurements for OTC derivatives (interest rate swaps, fx forward, and other financial instruments).

IFRS 13 requires account for exit-price i.e. price of liquidating the derivatives positions with the counterparty.as conterparty is usaully a bank , and banks best-practice models use multi-curve frameworks (using different curves for discounting cashflows and projecting future Euribor or Libor linked payments).

IFRS 13:

*Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.*

New methodologies include

- Ois-discounting
- Multi-curve framework
- CVA/DVA calculations

Also you can perform Hedge effectiveness tests for interest rate swaps.

In case of adoption of IFRS 9 framework by corporate there are some major differences with IAS 39 concerning hedge effectiveness testings:

- there’s no threshold of 80%-125% rule

References:

IFRS 13 fair value technical summary