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).
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
- 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
IFRS 13 fair value technical summary