London, 16 October 2013
– With financial year-end fast approaching for many companies,
financial professionals may want to outsource the valuations of their
derivatives to mitigate non-compliance with International Financial
Reporting Standard, IFRS 13, which came into effect at the beginning of
this year, says Reval, a global Software-as-a-Service (SaaS) provider of Treasury and Risk Management (TRM) solutions.
In a recent Reval poll of European financial professionals, only 14
percent said that they are confident they will meet compliance with the
new requirements, and 86 percent said they are still struggling to
understand the standard or are unsure of how to implement it. IFRS 13
changed the definition of fair value and how it is to be calculated.
Under the new standard, a counterparty’s credit risk, or Credit Value
Adjustment (CVA), must be taken into account when valuing derivatives,
and an entity’s own credit risk, or Debt Value Adjustment (DVA), must be
accounted for as well.
“Application of credit adjustment introduces noise to the hedge
structure, potentially leading to hedge ineffectiveness,” explains
Günther Peer, Regional Vice President of Solution Consulting, EMEA at
Reval. “As CVA and DVA calculations are complex, and the preferred
approach should be coordinated with the corporate´s auditor or advisory
firm before implementing, outsourcing to a reliable partner is probably a
viable option to assure compliance at year end.”
Reval offers a subscription-based outsourcing service, Reval Center™, which provides derivative and financial instrument valuation, hedge accounting
and compliance reporting on behalf its clients. Reval’s in-house
experts use the SaaS TRM solution to manage the processing and provide
Forty-four percent of financial professionals polled also reported
that they intend to use spreadsheets for their calculations.
“Calculating CVA and DVA with spreadsheets will be very challenging this
close to year-end,” says Peer. “As fair values have to be determined on
an ongoing basis, outsourcing is a more efficient and reliable choice,
considering the additional time spent on a monthly basis and the
operational risk of relying on spreadsheets.”
For more information about Reval Center and Reval’s expertise in
hedge accounting and compliance, visit us at EuroFinance´s International
Cash and Treasury Management conference in Barcelona, 16.-18. October
2013, stand L31/33.
For more information, visit www.reval.com or email firstname.lastname@example.org.
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