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Fair Valuation Takes Centre Stage

by Jiro Okochi, Chief Executive Officer, Reval

How the world has changed since our first Hedge Accounting Guide of 2008. According to many pundits and bank lobbyists, fair value accounting rules under FAS 157 stood near the epicentre of the financial maelstrom. Who knew accountants were the real masters of the universe dancing around the many bonfires of the vanities.

With or without the necessary clarifications of how to fair value under FAS 157 or the pending FAS 157- like amendments to IFRS 7, adjusting fair values for credit is nothing new. Both FAS 133 and IAS 39 clearly reference the need to adjust derivative fair valuations to account for the impact of the credit worthiness of the counterparty. Issued by the FASB in 2006, FAS 157 probably would have been one of those “check-the-box” standards, but thanks to the financial crisis and 200-300 bps over LIBOR AA bank spreads, credit-adjusted fair valuations is the hot topic among our clients and a material concern for their auditors.

Who knew accountants were the real masters of the universe dancing around the many bonfires of the vanities.

As all of us at Reval remain passionate about derivatives, accounting and technology, we were fast to respond, releasing a FAS 157 module before the inception date of the standard in the fall of 2007. Working with leading corporations, banks and the Big 4, we continued to enhance the module, as the best practice interpretations of the standard and real life implementations began to unfold, leading to an award-winning FAS 157 module.