Accounting for KVA under IFRS 13

Many banks now price the capital valuation adjustment (KVA), reflecting the lifetime cost of capital on a trade. Richard Kenyon and Chris Kenyon propose an accounting treatment for the economic effects of KVA in accordance with IFRS 13 (fair value measurement) accounting standards, which requires preparers of accounts to use economic models in appropriate circumstances

The capital requirements of Basel 2.5 (BCBS-193, 2011) and Basel III (BCBS-189, 2011) have contributed to major reorganisations in trading activity post-crisis. Recent surveys (Sherif and Chambers 2015; Ernst and Young 2015) indicate that banks are pricing the lifetime  cost of capital, reflected in KVA into trades, and pricing methods have been formalised (Green, Kenyon and Denis, 2014; Kenyon and Green, 2015; Elouerkhaoui, 2016) but no accounting treatment has been presented. By accounting