PwC Comments on the International Valuation Standards Council's Exposure Draft: Credit and Debit Valuation Adjustments

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PwC comment letter (IVSC) 03/06/2014 by Assurance services
PwC Comments on the International Valuation Standards Council's Exposure Draft: Credit and Debit Valuation Adjustments

At a glance

PwC appreciates the International Valuation Standards Council (IVSC) Standards Board (board) efforts and welcomes the opportunity to provide comments on the exposure draft (ED) that sets out the board’s proposals aimed at providing information on credit and debit valuation adjustments. Our comment letter outlines our general comments to the proposal and responds to certain specific questions for comment in the appendix.

In this letter, while we agree that the valuation of derivatives is a complex area and that information aimed at improving the general understanding of complex valuation concepts is beneficial, we have laid out three fundamental concerns with the document that we believe the board should address before proceeding with its issuance.

First, it is not clear what valuation standard this document is interpreting.  Without that clarity, it is difficult for a reader to understand the conceptual framework that underpins this document, and may interfere with the stated goal of reducing diversity.  We believe that the board should be more disciplined in its use of Technical Information Paper (TIPs), and be sure to provide clear linkage to a related valuation conceptual standard.  

Second, the TIP states that the issue applies not only to financial institutions, but to corporate entities as well.  It is not clear to us that the views of those corporate entities have been fully considered in the document, and we suggest that the Board specifically solicit and incorporate those views prior to release.   

Finally, we do not believe a TIP should dictate or prescribe what model or technique is appropriate for a given user.  Rather, it is more appropriate to provide information about the valuation standard that enables users to make an informed decision based on their specific facts and circumstances.