IAS 39 Validity Testing

In principle according to IAS standards market valuation is the dominating approach in external reporting of corporate results and performance. This principle is complicated by the use of hedging policies and operations in corporate financial management, which aim at smoothing out reported (and actual) periodical results. IAS 39 states in short that in order for a hedge to be used in netting the losses or gains of underlying business operations the hedge must pass a procedure known as Validity Testing.

The R/V Platform includes a complete set of mark-to-model tools for testing the validity of hedges. In validity testing the value of the specific hedge has to be in the range of 80% to 125% of the value of the underlying position throughout the hedging period. This requirement can be conveniently tested for all candidate hedges and all underlying positions using the path simulation functionality of the system.