Articles - IFRS requires a redesign of many banks’ IT architectures

 By David Sherriff, CEO of Microgen
 The International Financial Reporting Standards (IFRS) represent a fundamental change in accounting with an increased focus on fair value reporting. Rather than carrying financial products at historic cost, banks must be able to take many financial instruments held by the bank as an asset or liability and create the fair value – showing what they would fetch if sold today.

 IFRS puts renewed pressure on finance and risk heads to work across departmental borders to provide real transparency. Whereas to date there has been a lot of estimation and much left open to interpretation, banks may in future have to justify down to the level of individual loans and why they held the reserves they did against them. This means they will need to keep both the transaction detail and the rationale regarding their treatment. For this to happen, disconnected systems must be made to ‘talk’.

 In the complicated business of banking, disconnected computer systems are often the norm and by the time transaction data enters the general ledger, it has been aggregated to a very high level and processed in ways that are not clear to the outsider. In some cases there is no way, for example, to trace back from ‘loans’ in the ledger to what the reasoning was regarding individual loans that led to the lost reserves assigned to them collectively.

 Many existing core banking systems are therefore currently unable to deliver the required fair value reporting – and the cost to change them in order to do so is prohibitive. Tactical spreadsheet solutions or standalone databases only postpone the cost of a fundamental system redesign. Long-term solutions are needed.

 One such strategy is the implementation of a centralised accounting hub that co-exists with, yet augments, existing core banking systems. An accounting hub can tie all of the bank’s information together and act as a single source of all postings to the general ledger. This method allows calculations to be retained for audit purposes, which is vital for IFRS compliance. Banks often have to justify their accounting methods by producing original transaction details –challenging for those without a hub to centralise accounting data and instructions.

 Some of the first banks to deploy IFRS have lost revenue and set themselves up for increasing amounts of incremental work and expense in the future by not taking a strategic approach and fundamentally overhauling their system design at outset. There are waves of further accounting and regulatory changes on the horizon as the industry moves towards risk-adjusted reporting. IFRS and Basel capital adequacy standards are therefore converging.

 Aside from the hefty fines that accompany a lack of compliance, a disconnection between risk measurement and finance is both a business risk and a waste of resources. There’s a duplication of effort in extracting the same data many times and a further, ongoing waste of time and money when efforts are later made to reconcile the reports of different company units.

 Tactical solutions ultimately cost more in time, effort and lost opportunity. It’s time to think strategically about IFRS implementation and provide true transparency.

Back to Index

Similar News to this Story

Closing the net on ghost brokers with email intelligence
As households face the biggest economic squeeze in generations , finding ways to cut the cost of everyday but essential living expenses such as moto
10 Plus C level Claims Executives share their insights
C-level claims executives from Arch, Aviva Canada, Berkley Mid-Atlantic Group and SageSure have just been announced as speakers for Intelligent Insure
Recycling knowledge to fuel green investments
Thursday is ‘bin night’ in my household. A day not to be forgotten if I want to avoid overflowing bins for the next week. It is also the weekly opport

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS


Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.