≡ Menu


What is Credit Value Adjustment (CVA) in Accounting?


Counterparty credit risk (CVA) is the risk that the counterparty to a financial contract will default prior to the expiration of the contract and will not make all the payments required by the contract. Obviously exchange-traded derivatives are not subject to counterparty risk as the respective exchange guarantees the settlement of cash flows as per the derivative contract. CVA is a measure that adjusts the risk-free value of an instrument to incorporate counterparty credit risk. CVA can be positive or negative depending on which of the two counterparties is most likely to default and the relative balances due or receivable to each other.

There were some concerns expressed in certain quarters as to whether the Debit Value Adjustment (DVA) should be considered in determining the fair value. Now based on the recent exposure draft announced jointly by IASB and FASB on 28th January 2011 on Offsetting Financial Assets and Financial Liabilities it is amply clear that the DVA also should be recognized along with CVA.



Product Description

The most practical, authoritative guide to governmental GAAPWiley GAAP for Governments 2011 is a comprehensive guide to the accounting and financial reporting principles used by state and local governments as well as other governmental entities. Designed with the needs of the user in mind, a “New Developments” chapter offers the important developments in governmental GAAP during the past year. 

  • Full coverage of authoritative accounting standards
  • Extremely useful and user-friendly examples, illustrations, and helpful practice hints
  • A comprehensive guide to the accounting and financial reporting principles used by state and local governments as well as other governmental entities
  • Provides a look ahead to the status of current and future Governmental Accounting Standards Board standards and projects
  • Offers information on the very latest in standard-setting activities
  • Also by Warren Ruppel: Governmental Accounting Made Easy

Wiley GAAP for Governments 2011 is a thorough, reliable reference financial professionals will consistently keep on their desks rather than on their bookshelves.  

From the Back Cover

The most practical, authoritativeguide to governmental GAAPWiley GAAP for Governments 2011 is a comprehensive guide to the accounting and financial reporting principles used by state and local governments as well as other governmental entities. Financial statement preparers, attestors, and readers will find its full coverage of authoritative accounting standards coupled with many examples, illustrations, and helpful practice hints extremely useful and user-friendly. Designed with the needs of the user in mind, a “New Developments” chapter keeps you informed of all the important developments in governmental GAAP during the past year. A look ahead at the status of current and future Governmental Accounting Standards Board standards and projects provides information on the very latest in standard-setting activities and covers: 

  • GASB Statement No. 51 Accounting and Financial Reporting for Intangible Assets
  • GASB Statement No. 52 Land and Other Real Estate Held as Investments by Endowments
  • GASB Statement No. 53 Accounting and Financial Reporting for Derivatives
  • GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Devinitions
  • GASB Statement No. 55 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments
  • GASB Statement No. 56 Codification of Accounting and Financial Reporting Guidance Contained in AICPA Statements on Auditing Standards
  • GASB Statement No. 57 OPEB Measurements by Agent Employers and Agent Multi-Employer Plans
  • GASB Statement No. 58 Accounting and Financial Reporting for Chapter 9 Bankruptcies
  • Exposure Draft Accounting and Financial Reporting for Service Concession Arrangements
  • Exposure Draft Financial Instruments Omnibus
  • Exposure Draft Pension Accounting and Financial Reporting
  • Latest on GASB Technical Plan  

Wiley GAAP for Governments 2011 strives to be a thorough, reliable reference that you’ll use constantly. It’s designed to be kept on your desk rather than on your bookshelf.


Product Details

  • Paperback: 600 pages
  • Publisher: Wiley; Revised edition edition (March 1, 2011)
  • Language: English
  • ISBN-10: 0470554460
  • ISBN-13: 978-0470554463



Cash Flow Hedge for a Foreign Currency debt


As per US GAAP, Cash flow hedge accounting for a foreign currency debt is permissible using a FX forward contract to cover the Foreign Exchange risk . Section 815-20-25-28 is quoted below:

“If the hedged item is denominated in a foreign currency, an entity may designate any of the following types of hedges of foreign currency exposure:
a. A fair value hedge of an unrecognized firm commitment or a recognized asset or liability (including an available-for-sale security)
b. A cash flow hedge of any of the following:
1. A forecasted transaction
2. An unrecognized firm commitment
3. The forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability
4. A forecasted intra-entity transaction.
c. A hedge of a net investment in a foreign operation.”

Such a cash flow hedge is specifically permitted by virtue of Section 815-20-25-29 which is quoted below:

“The recognition in earnings of the foreign currency transaction gain or loss on a foreign-currency-denominated asset or liability based on changes in the foreign currency spot rate is not considered to be the remeasurement of that asset or liability with changes in fair value attributable to foreign exchange risk recognized in earnings, which is discussed in the criteria in paragraphs 815-20-25-15(d) and 815-20-25-43(c).

Thus, those criteria are not impediments to either of the following:
a. A foreign currency fair value or cash flow hedge of such a foreign-currency- denominated asset or liability
b. A foreign currency cash flow hedge of the forecasted acquisition or incurrence of a foreign currency-denominated asset or liability whose carrying amount will be remeasured at spot exchange rates under paragraph 830-20-35-1.

Is this type of a transaction eligible as a Cash Flow hedge under IAS 39 of IFRS? …read more on Forum


Product Description

A wide-ranging source of information for the practicing accountant, The Ultimate Accountants’ Reference, Third Edition covers accounting regulations for all aspects of financial statements, accounting management reports, and management of the accounting department, including best practices, control systems, and the fast close. It also addresses financing options, pension plans, and taxation options. The perfect daily answer book, accountants and accounting managers will turn to The Ultimate Accountants’ Reference, Third Edition time and again for answers to the largest possible number of accounting issues that are likely to arise.

From the Back Cover

The Ultimate Accountants’ Reference offers a single-source tool of best practices and control systems related to accounting regulations for all aspects of financial statements, accounting management reports, and management of the accounting department. The perfect daily answer book for the practicing accountant, it also addresses financing options, risk management, mergers and acquisitions, and taxation topics.

This revised and updated edition of Accounting Reference Desktop offers a concentrated, everyday reference manual to help financial professionals become much more efficient in researching accounting topics. New features of this improved resource tool include:

  • Up-to-date information on GAAP, IRS regulations, and new SEC regulations
  • New material on leases and options
  • More examples than the previous edition
  • The latest coverage of control systems, including twice as many controls as the previous edition
  • Double the amount of journal entries as the previous edition

Accountants, accounting managers, and finance personnel will turn to The Ultimate Accountants’ Reference time and again for quick, reliable answers to everyday issues. –This text refers to an out of print or unavailable edition of this title.

Product Details

  • Hardcover: 816 pages
  • Publisher: Wiley; 3 edition (March 8, 2010)
  • Language: English
  • ISBN-10: 047057254X
  • ISBN-13: 978-0470572542
  • Product Dimensions: 10 x 7.1 x 1.7 inches

No decision taken about the timing of a possible conversion to IFRS


While the SEC approved a statement supporting the adoption of global accounting standards for U.S. companies, the Chairman Mary Schapiro cautioned that, “Incorporating International Financial Reporting Standards (IFRS) into our financial reporting system would involve a significant undertaking. We must carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets.

“The Commission also voted to approve a Work Plan developed by SEC staff that would gather information to aid the Commission as it evaluates the impact that the use of IFRS by U.S. companies would have on our securities market,” Schapiro said. The Work Plan will be completed in 2011, the target date set by the 2008 Proposed Roadmap.

Schapiro said, however, that no decision had been made about the timing of a possible conversion to IFRS. “We must still determine what this means for U.S. companies and markets; should we incorporate IFRS into our reporting system and, if so, when and how?

Source: http://www.accountingweb.com/topic/cfo/sec-approves-work-plan-assess-us-adoption-global-accounting-standards


Accounting for Investments – Equities, Futures & Options –  is the first volume in this series published by John Wiley & Sons. This video gives an overview of the contents of this book. This is the first part of a series of videos that would cover the contents all the chapters in great detail.

I would appreciate if you could leave your feedback.

R. Venkata Subramani

US GAAP – codified topics

1 105 – Generally Accepted Accounting Principles
2 205 – Presentation of Financial Statements
3 210 – Balance Sheet
4 215 – Statement of Shareholder Equity
5 220 – Comprehensive Income
6 225 – Income Statement
7 230 – Statement of Cash Flows
8 235 – Notes to Financial Statements
9 250 – Accounting Changes and Error Corrections
10 255 – Changing Prices
11 260 – Earnings Per Share
12 270 – Interim Reporting
13 272 – Limited Liability Entities
14 274 – Personal Financial Statements
15 275 – Risks and Uncertainties
16 280 – Segment Reporting
17 305 – Cash and Cash Equivalents
18 310 – Receivables
19 320 – Investments—Debt and Equity Securities
20 323 – Investments—Equity Method and Joint Ventures
21 325 – Investments—Other
22 330 – Inventory
23 340 – Other Assets and Deferred Costs
24 350 – Intangibles—Goodwill and Other
25 360 – Property, Plant, and Equipment
26 405 – Liabilities
27 410 – Asset Retirement and Environmental Obligations
28 420 – Exit or Disposal Cost Obligations
29 430 – Deferred Revenue
30 440 – Commitments
31 450 – Contingencies
32 460 – Guarantees
33 470 – Debt
34 480 – Distinguishing Liabilities from Equity
35 505 – Equity
36 605 – Revenue Recognition
37 705 – Cost of Sales and Services
38 710 – Compensation—General
39 712 – Compensation—Nonretirement Postemployment Benefits
40 715 – Compensation—Retirement Benefits
41 718 – Compensation—Stock Compensation
42 720 – Other Expenses
43 730 – Research and Development
44 740 – Income Taxes
45 805 – Business Combinations
46 808 – Collaborative Arrangements
47 810 – Consolidation
48 815 – Derivatives and Hedging
49 820 – Fair Value Measurements and Disclosures
50 825 – Financial Instruments
51 830 – Foreign Currency Matters
52 835 – Interest
53 840 – Leases
54 845 – Nonmonetary Transactions
55 850 – Related Party Disclosures
56 852 – Reorganizations
57 855 – Subsequent Events
58 860 – Transfers and Servicing
59 905 – Agriculture
60 908 – Airlines
61 910 – Contractors—Construction
62 912 – Contractors—Federal Government
63 915 – Development Stage Entities
64 920 – Entertainment – Broadcasters
65 922 – Entertainment – Cable Television
66 924 – Entertainment – Casinos
67 926 – Entertainment – Films
68 928 – Entertainment – Music
69 930 – Extractive Activities – Mining
70 932 – Extractive Activities – Oil & Gas
71 940 – Financial Services—Broker and Dealers
72 942 – Financial Services—Depository and Lending
73 944 – Financial Services—Insurance
74 946 – Financial Services—Investment Companies
75 948 – Financial Services—Mortgage Banking
76 950 – Financial Services—Title Plant
77 952 – Franchisors
78 954 – Health Care Entities
79 958 – Not-for-Profit Entities
80 960 – Plan Accounting—Defined Benefit Pension Plans
81 962 – Plan Accounting—Defined Contribution Pension Plans
82 965 – Plan Accounting—Health and Welfare Benefit Plans
83 970 – Real Estate – General
84 972 – Real Estate – Common Interest Realty Association
85 974 – Real Estate – Real Estate Investment Trusts
86 976 – Real Estate – Retail Land
87 978 – Real Estate – Time Sharing Activities
88 980 – Regulated Operations
89 985 – Software
90 995 – U.S. Steamship Entities

FASB has come up with a list of new disclosures to be effective in financial statements for fiscal years that end after Nov. 15, 2008, in order to help investors get a grip on the financial implications for companies that have sold credit default swaps,

Credit Default swaps are derivative contracts in which one counter party (the buyer of protection) pays a premium to a second party (the seller of protection) for taking credit risk of an issuer or a security (the reference  issuer). The second party makes no payments unless a specified credit event occurs like failure to pay, bankruptcy or debt restructuring for a specified reference asset. If the Reference Issuer suffers a “credit event,” then the seller of protection pays the loss on the Reference Security to the buyer, to the extent of the notional amount of the CDS and the swap then terminates.

The new standard introduced by FASB eliminates an odd inconsistency between two existing accounting standards. One of those rules, Interpretation 45, covers financial guarantees, which hold the same risks and rewards as credit derivatives. It requires extensive disclosure of contracts in which the buyer of the insurance owns the underlying instrument it is protecting.

But if the guaranteed party does not own the asset or instrument that is insured, the protection is classified as a derivative and falls under another accounting standard viz., FAS 133, requiring no disclosure.
This weird dichotomy is sought to be eliminated by the introduction of FAS 161. The risks of financial guarantee and a credit derivative being undertaken by a firm under either of these kinds of instruments are the same.

The FASB new standard would cover sellers of CDS instruments, namely the entities that act as insurers. They would have to disclose such details as the nature and term of the credit derivative, the reason it was entered into and the current status of its payment and performance risk.

In addition, the seller would provide the amount of future payments it might be required to make, the fair value of the derivative and whether there are provisions that would allow the seller to recover money or assets from third parties to pay for the insurance coverage it has written.