FlexFinance IFRS. FERNBACH Professional IFRS 9 Software Solutions

Transcription

1 FlexFinance IFRS FERNBACH Professional IFRS 9 Software Solutions

2 Contents IFRS the global accounting language... FlexFinance the strategic approach to automate IFRS... Standard package fits all business cases... The perfect add-on for your core banking/erp solution... One world for financial accounting group-wide... Economic truth combined with IFRS-compliant valuation... Easy installation thanks to ready-to-go concept... Comprehensive implementation of IFRS in an off-the-shelf standard software... Certified financial statements... FlexFinance speaks the language of accountants... All reports in a one-stop shop... Inbuilt general ledger or any other general ledger... Automated reconciliation based on KPIs... Build your own reports... IFRS embedded in an integrated approach for Finance, Risk and Compliance... Hedging... Impairment for all lending business sectors... Support for the IFRS 9 Expected Loss Model... Cloud & SaaS... FERNBACH s commitment to IFRS About FERNBACH... 44

3 IFRS the global accounting language The International Financial Reporting Standards (IFRS) have become the de facto language in accounting worldwide. More than 100 countries currently either require or permit the implementation of IFRS in the course of replacing local GAAP requirements. Financial statements based on IFRS can be understood in a global marketplace. They are comparable at international level and they help financial institutions to find access to the world capital markets, reduce costs and position themselves as global players. Although IFRSs are advancing globally, they represent a major change to the financial accounting and reporting practices of financial institutions. As a result, there is a shift away from the actual work content in the accounting sector, such as analysis, planning and controlling the balance sheet and income statement towards complex auxiliary calculations and a laborious preparation of reports. 4 5

4 FlexFinance the strategic approach to automate IFRS The flexible solution from FERNBACH, which is part of the FlexFinance product range, has proven successful in many projects worldwide. It covers the IFRS requirements entirely and helps to alleviate the workload in finance and risk departments. The solution, which can be used as a plug-in in any system landscape, can be integrated into existing components. Its design ensures the highest possible degree of automation for accounting procedures, while keeping processes transparent and simple at the same time. As an end-to-end solution, FlexFinance covers the entire range of IFRS functions. The off-theshelf design ensures that a financial institute will be IFRS-compliant, without any ifs and buts, as soon as FlexFinance is connected to the source systems. By continually implementing the regulatory regulations, FERNBACH ensures that financial institutions are able to fulfil IFRS requirements. As far as IFRS 9 is concerned, FlexFinance provides, for risk provisioning in particular, a comprehensive catalogue of instruments that includes calculation, simulation, accounting, analysis and reporting. Since different organisational units in a financial institution are usually involved in this process, preconfigured workflow processes, which control and monitor processing, have been installed. Of course, the requirements for classification, valuation and hedging under IFRS 9 have been incorporated in the current software version as well as the fair value requirements under IFRS 13. With this efficient and pragmatic approach, finance and IT departments do not have to worry about complex functional topics and process interdependencies during implementation or application of IFRS. There is no need for manual intervention or manual calculations in the fully automated processes. Hence, the focus in finance departments can centre on the analysis and determination of financial figures for the management of the company. A vast range of service offers are provided for implementation ranging from fully customised implementation to a ready-to-go solution. The software can be installed in a computer centre or provided as Software as a Service. In each case, FlexFinance relieves the workload of business and IT departments on a sustainable level and frees up the capacities needed to deal with core tasks. 6 7

5 Standard package fits all business cases The same software package is always delivered, regardless of whether a single entity uses only specific software functions for IFRS or whether the software is used in a global, group-wide environment with an accounting system that has to accommodate multiple entities, GAAPs, currencies and time zones. Functions that are not needed can be switched off individually. Due to the high level of standardisation in FlexFinance, customised packaging is not necessary, thus ensuring that all customers benefit equally from best practices and ready-to-use functions that can be adjusted to meet the requirements of individual business cases. 8 9

6 Business case: The perfect add-on for your core banking/erp solution This business case is common in situations in which IFRS is introduced as additional GAAP or when it replaces a local GAAP for an individual entity. The ERP system is still used for all face to the customer activities such as contracts and payments. If local GAAP is not replaced completely, the process chain in the ERP system remains untouched. FlexFinance is linked to customer data, contract and payment information and covers all IFRS requirements as an add-on. Solutions/providers for medium-sized banks and financial institutions Core banking abstract FRC FERNBACH Business intelligence 10 11

7 Business rule function Multi-GAAP Ledger in accounting engine Country 1 IFRS MUREX US-GAAP Any GAAP Sophis OPICS G/L Balance G/L Internal Organisation G/L Product Segment Journal Entry Time Period Country.. n CoreX Deal data link to GAAP G/L Subaccount G/L Accounts GL Sub-ledgers Lending Business case: Retail Revenue Expense Assets Liabilities Equity One world for financial accounting group-wide Typical for this business case is a central accounting rules engine that takes IFRS requirements into account for the generation of debit/ credit entries for all accounting events. In this case, individual financial statements are prepared for the organisational units while consolidation is carried out for the entire group. In general, FlexFinance can be connected to product-specific sources. Data Warehouse Any General Ledger Any BI 12 13

8 FlexFinance compliant, pragmatic, auditable, on-time, simply ready-to-go

9 open amortisation The reflection of payment behaviour in the estimated cash flow plan impacts profit and loss time amortisation based on contractual cash flows amortisation based on estimated cash flows Economic truth combined with IFRS-compliant valuation IFRS-compliant valuation calls for an estimated cash flow plan that needs to cover the entire life cycle of an individual deal. Future cash flows from capital, interest and charges have to be forecast on the basis of contractual agreements, market data and expected payment behaviour of the counterparty. For this purpose, the FlexFinance Cash Flow Generator provides views that take into account a customer s expected payment behaviour or the expected future market data in addition to the contractual views. In this way, the cash flow plan correctly reflects the economic situation. Thus a key requirement of IFRS 9 for valuation is respected. This impacts fair value calculation and amortisation, while ensuring that profit and loss are in line with economic expectations. The high degree of detail contained in the cash flows allows users to distinguish between different types of events which have different effects on the calculation of the effective interest rate. FlexFinance follows the model of single calculation. Calculated measures such as amortised cost and fair value are split into highly granular valuation components. These components support unique business analyses far beyond the conventional breakdowns on descriptive deal parameters. In addition to IAS 39 compliance, FlexFinance fully supports the new requirements of IFRS 9, which includes categorisation of financial instruments, valuation at amortised cost, exercising the fair value option, measurement at fair value through profit & loss as well as at fair value through other comprehensive income. The FlexFinance Cash Flow Generator fully supports the fair value requirements of IFRS 13, including (but not limited to) proper treatment of instruments with a variable interest rate, appropriate inclusion of own credit risk in the fair value calculation of financial liabilities, support of disclosure requirements specific to IFRS 13 and much more

10 FlexFinance Landscape Accounting IFRS Multi-GAAP Contracts Security Position Counterparties Market Data Financial Accounts Interface/Data Access Valuation Hedge Manager Impairment Accounting Reporting Analysis: Results Analysis: Accounts Dashboards Interface/Data Export Output </> XML 3 rd Party Systems Cash Flow Engine EIR New Derivative Model Day Count Module Data Capture Sheet PD/LDG Model Pre- Payment Model Chart of Accounts Reports Easy installation thanks to ready-to-go concept FERNBACH s expertise is reflected in the standard setup. It is based on real best practice experiences from different projects with different auditors in different countries. This standard software setup, including accounting logic and reporting functions, is part of the delivery and can be individually adjusted to a specific accounting policy without any IT knowledge. The ready-to-go methodology is the quickest and easiest way to use the system which is preconfigured with roughly 300 reports and analyses, including all the regulatory reporting standards, and can go into operation in just a few days. The ready-to-go installations are provided as conventional installations on a customer s premises or as SaaS in FERNBACH s computer centre or that of a FERNBACH partner

11 Comprehensive implementation of IFRS in an off-the-shelf standard software Pre-configured business events and valuation methods for all products Rule set for financial accounting incl. accounting events and chart of accounts Integral report library with ready-to-use reports IFRS out of the box Current Account Commitments Collaterals Money Market Savings FX Securities Derivatives Loans The solution is off the shelf and ready to use. Once the source systems have been connected to FlexFinance via ETL, IFRS-compliant statements are available immediately. For this purpose the delivery already features the standard setup for valuation, journalisation, general ledger functionality as well as disclosures for internal and external stakeholders. However the solution can, of course, also be customised for those who would like to apply an individual chart of accounts, their own accounting policy or individual calculation methodologies. Resources are conserved owing to maximum automation and centralisation of processes. The IFRS requirements are covered by the standard software and do not have to be implemented via preprocessing during the project ( end-to-end processing ). Pre-configured products 20 21

12 FlexFinance speaks the language of accountants FlexFinance has its roots in financial accounting. It enables financial institutes to operate a business-event-driven financial accounting system. For this purpose, it generates conventional debit and credit entries. Each business event is reflected in a configurable set of entries, ensuring the determination of profit on an accrual basis. Comprehensive audit trails can be defined, providing consistent analysis for all positions in the balance sheet, income statement and other financial reports or annexes. Following the needs of accountants for a 360 drilldown function, FlexFinance supports drilldowns from any reporting position to the underlying transaction, related events and applied business rules which are part of the configuration. Valuation results can be tracked to the underlying, the mathematical formula as well as the factors applied. Certified financial statements A standard accounting set of rules, which is delivered with the software, contains the chart of accounts as well as the entire accounting logic which is needed to present the business cases in financial accounting. It can be either used without change or supplemented and customised to individual needs and requirements. Financial statements based on the standard chart of accounts and standard accounting rules have been certified by auditors

13 All reports in a one-stop shop FlexFinance provides data and values for diverse IFRS statements in various IFRS data marts. Individual analyses and a wide range of reports can be prepared on this basis. FlexFinance supports the disclosure requirements of inter alia IAS 1, IFRS 7, IFRS 9 and IFRS 13. This includes for instance the following statements: Wherever, local supervisors require regulatory reporting based on IFRS (such as Europe s FINREP regulation) the solution can generate regulatory disclosures. Financial institutes benefit from the increased quality of analyses and disclosures through the high transparency of reports and also from the fast availability of disclosures. Balance sheet (statement of financial position) Income statement (statement of comprehensive income and statement of changes in equity) Notes Segment reporting Cash flow statement The report layer in FlexFinance operates on the basis of the data mart approach whereby data storage and report design are separated. On the basis of individual deal data, global data records allow easy access to valuation results and descriptive parameters, including information on counterparties, transactions and the organisation unit responsible

14 Inbuilt general ledger or any other general ledger The solution is complemented by an inbuilt general ledger. Both the accounting process and the general ledger support multiple GAAPs, multiple currencies, multiple economic entities as well as their consolidation in line with IAS 21 and IFRS 10, 11 and 12. If necessary, debit and credit entries can be fed into any third-party GL system

15 Automated reconciliation based on KPIs FlexFinance provides a wide range of options for reconciliation and supports different approaches. Depending on the expected level of analysis, reconciliation is supported at single deal level as well as at aggregated levels such as the holding category or product type. FlexFinance offers specific tools for each type of reconciliation. Interfaces from and to external systems are easy to view. The interface to an optional external general ledger provides, for example, overviews on the batch runs, accounting journals as well as drilldown functions to individual deals and their business events. A framework for key performance indicators allows for performance measurement, monitoring of business processes, results and risks as well as for automatic reconciliation. It is no longer necessary to read extensive reports and compare figures, because indicators can trigger notifications when predefined thresholds are exceeded or reconciliation fails in general. The relevant indicators are analysed automatically, compared to historical or target values and the results are stored. Thus reference values over a period of time are available. A variety of KPIs is predefined in FlexFinance. The algorithm of the KPIs can be adjusted to individual requirements and the thresholds can be defined individually by the user. Selection of new KPIs Define parameters Select actions 28 29

16 Build your own reports All reports created in FlexFinance can be exported to Excel. Moreover, it is possible to create new reports in Excel that can then be uploaded to FlexFinance. The Excel files are then automatically filled with data from FlexFinance, e.g. overnight. Assignment of coordinates to the cells during upload and the calculation rules 30 31

17 IFRS embedded in an integrated approach for Finance, Risk and Compliance Finance FlexFinance offers of a multi-gaap accounting solution, in which, in addition to IFRS, parallel GAAPs can be processed at any time. The FlexFinance solution for IFRS is a member of the FlexFinance FRC (Finance, Risk and Compliance) product family. As such, it can also be used as an integrated solution with a common business intelligence platform for finance, risk and reporting functions. The FRC product family is characterised by its modular approach which allows customers to select components and functions. The integrated solution brings new perspectives to management decisions and ensures consistent data without costly reconciliation. It also helps to leverage the cost of ownership by using the same software for the same function. For instance, the generation of the estimated cash flow plan is a prerequisite for many types of valuations in finance and risk, similar to the consideration of default data for the measurement of the probability of default or the consideration of scenarios for forecasts. Risk Compliance The integrated approach used in the FlexFinance product family is particularly useful for topics such as impairment and hedge management. Finance and risk departments can now use the same loss database and the same calculation engine. This ensures consistent data and results

18 Powerful add-ons Hedging IFRS embraces the mixed model approach. In a hedging relationship, this means that deals that are included in a hedging relationship are subject to different valuation methods because the holding categories differ. Whereas most hedged items are valued at amortised cost, the corresponding hedging instruments (derivatives) are generally measured at fair value. In such cases, the accounting procedure for a hedging relationship leads to a reduction in the volatility of profit and loss. In order to avoid inconsistencies in the profit and loss account, FlexFinance covers the following options under IFRS 9: The FlexFinance Hedge Manager is fully compliant with the new requirements of IFRS 9 Phase 3: It provides the flexibility to tune internal hedge effectiveness thresholds to anything different from the bright line of % and allows for documentation and history tracking of qualitative assessment. Non-financial instruments can be designated as hedged items, derivatives can be part of hedged items and any instrument can be assigned as a hedging instrument. Rebalancing of hedge relationships is always possible and IFRS 9 documentation requirements are implemented through a workflow-based approval process. Micro fair value hedges Cash flow hedges Macro portfolio interest rate risk hedges Fair value options FlexFinance provides a hedge management solution that maps the full life cycle of a hedge from designation to termination. The solution can be used in both real-time mode as well as in batch mode. All IFRS requirements regarding the documentation and audit trail of a hedge relationship are also fully supported. Of course, the software covers different types of effectiveness testing and offers a view for monitoring the effectiveness of hedges during their life cycle. Hedge accounting is an integral part of the automated financial accounting procedure

19 Impairment for all lending business sectors Since the credit crunch, the subject of risk provisioning has not only become more important for financial reporting but has confronted financial institutions with ever-increasing complex challenges with regards to the requirements for calculations and accounting processes. Against this background, the FlexFinance functions gain significance since they enable financial institutions to comply quickly and easily with these requirements and optimise their processes. FlexFinance supports both types of provisions: specific provision and lump-sum provision for individual deals as well as collective provisions for groups of deals. Regarding the volume of a receivable at individual deal level, FlexFinance covers the requirements for the value adjustment of significant asset volumes and the impairment requirements of the retail banking business. Amongst other things, this includes specific workflows in line with the significance of deals, covers impairment-specific accounting events and includes disclosures for regulatory reporting as well as internal analysis. A loss database is maintained as a basis for the derivation of figures such as PD and LGD. The utilisation of collateral as well as the associated cost of liquidation can be taken into account. FlexFinance supports calculation and value management for individual and collective provisions according to IAS 39 and IFRS 9. Powerful add-ons 36 37

20 Non-performing financial assets are allocated to Stage 3, where the impairment loss is calculated according to the discounted cash flow method and the analysis of underlying collateral and guarantees is supported. For non-significant, uncollateralised loans, a portfolio allowance is generated as a standard loss percentage. Apart from the pure calculation functions, FlexFinance also covers the presentation of risk provisions in terms of financial accounting in accordance with the stage in question. This includes, on request, the freezing of amortisation and interest accrual/deferral as well as the posing of the unwinding amount or the risk provision itself. Support for the IFRS 9 Expected Loss Model Estimating the expected future losses under IFRS 9 confronts banks with a number of new challenges. FlexFinance supports the three stages of risk provisioning according to IFRS 9 which calls for different methods for determining risk provisions depending on the credit quality. Moreover, the FlexFinance Impairment Workbench provides workflow-controlled process support which allows the transfer between the three impairment stages to be controlled automatically or manually. Quantitative (e.g. due days) and qualitative (e.g. rating downgrade) thresholds can be defined for individual portfolios. These operate as an automatic trigger for the transfer from one stage to another. A range of standard reports ensures compliance with the disclosure requirements of IFRS 7, aligned with IFRS 9. In Stage 1, the risk provision is calculated for the expected losses for the coming 12 months. In contrast to the Incurred but not reported losses approach under IAS 39, the Expected Loss Model results in an earlier and higher risk provision. To this end, the FlexFinance library provides different models for determining the PD and LGD that can be used in accordance with the default information available. In Stage 2, FlexFinance uses the Static Pool Analysis or the Bank of Ireland s Transitions-based Framework to calculate the expected losses over the entire life cycle as called for in Stage 2. The latter has proven to be an excellent model to incorporate macroeconomic factors and thus to ensure the pro-cyclicality of the risk provision

21 Start tomorrow Cloud & SaaS The combination of open technology standards and a thin client architecture makes FlexFinance the perfect match for Cloud Computing. In this setup, the entire server platform resides in a Cloud environment: a server platform that is physically on the premises of FERNBACH s Cloud Computing partner or directly at FERNBACH. Whether the cloud environment is situated at FERNBACH or a FERNBACH cloud computing partner depends on a customer s preferences or the place where their data are to be stored. General hardware and software server maintenance is provided by FERNBACH and its cloud partner. All products and services are provided as a private cloud solution based on fixed monthly amounts or as SaaS and a pay-as-you-use model. Data Centre Service: Access rights, security, antivirus software Backup, recovery, error tolerance Installation of new operating systems, databases FERNBACH Managed Service: Monitoring of daily processing Error analysis and editing in collaboration with business units Database checks Check of reporting deadlines Installation of new releases The advantage of cloud computing is that customers do not have to concern themselves with issues such as purchase, setup and maintenance of server hardware and software, database archiving, etc. In addition, our customers benefit from the worldwide flawless secure access to all data and components, in addition to maximum degrees of freedom for system customisation

22 FERNBACH s commitment to IFRS Quite a number of FERNBACH s customers have been using the FlexFinance product family for more than ten years. Since the first customer went live using FlexFinance for IFRS and multi-gaap accounting in 2003, FERNBACH has always closely followed the development of the IFRS requirements. The high degree of flexibility provided by the software ensures that numerous legal amendments (including IFRS 9) could be implemented without any need to develop new code. FlexFinance covers today s issues and meets tomorrow s challenges

23 About FERNBACH The company, with its headquarters in Luxembourg, was established in 1986 by Günther Fernbach and has numerous subsidiaries as well as a worldwide partner network. The efficient services we provide as well as our commitment to our customers ensure that projects are successful. The overall satisfaction of more than 50 customers can be verified by the fact that many of our business relationships are long term, having lasted longer than ten years

24 All rights reserved. All registered or unregistered product names, company names and/or trademarks are properties of their respective owners and should be treated as such FERNBACH Financial Software S.A. FERNBACH Professional IFRS 9 Software Solutions