Derivatives are required to be reported at fair value under accounting standards. There is a hierarchy of valuation methods that must be used - firstly observable market values if available down to models. Certainly where you are looking at models, there is the risk that these get the valuation wrong and the GFC comes to mind.
Auditors are required to form an opinion as to whether the accounts are true and fair. For derivatives valued using models, this would require a review of not only the calculation but the mode itself including any assumptions. There is no fixed formula for these calculations - models can and use very different approaches.
Certainly the fair value represents only the current credit risk and there is also potential credit risk. Whilst not on the face of the balance sheet, this is reported elsewhere including in bank's pillar 3 statements.
