International Financial Reporting Standard (IFRS9)
The IFRS9 standard became effective since 2018 as a replacement of the previous IAS39 standard following the financial crisis of 2008. The IAS39 incurred loss model was criticised for being ‘too little too late’ and the IFRS9 expected credit loss seeks to address that as it helps banks identifying and mitigating credit risk early.
Why Temenos IFRS9?
The IFRS Solution provides GAAP (Generally Accepted Accounting Principles) platform to support the changing financial regulatory standards related to Banks which includes:
- IAS39 ( Financial Instrument Recognition & Measurement)
- Adoption of IFRS9 or Transition from IAS39 to IFRS9(Financial Instruments)
- Provides the framework for Convergence to IFRS, e.g.FASB91 for US
- Multi-GAAP Accounting and Multiple Provisioning methods
It provides a seamless transition from IAS39 to IFRS9 or new IFRS9 implementation through configuration. It leverages on the fully integrated architecture of the Temenos core banking, cash flow engine, rules based staging process, risk-modelling engine, and automated data flow to ensure integrity, efficiency and consistency. to support the 3 main focus areas:
- Classification and measurement of financial instruments
- IFRS Staging and Impairment and Standard Provisioning under multiple GAAPs
- A framework for Hedge Accounting
Classification & Measurement
IFRS9 classification and measurement based on bank’s business model:
– Amortised Cost (AMC)
– Fair Value through Other Comprehensive Income(FVOCI)
– Fair Value Through Profit or Loss (FVPL)
Parameter driven accounting methods and accounting schema.
Cash flow engine integrated with the core banking applications with continuous update of the projected cash flow information through-out the life cycle of the loan
Calculation of EIR and revenue recognition
(*within Temenos products)
Impairment of Financial Assets
A new centralized impairment calculator within the system to move towards the Expected Loss Model and do the necessary Impairment Accounting:
– Uses the 3 Stages model based on Expected credit loss approach
– 12mth ECL, Point in Time ECL or Lifetime ECL
– Extended scope for impairment on financial instruments such as undrawn commitment and financial guarantees.
– Supports Collective as well as Individual assessment
– ECL as initial recognition.
– IFRS staging for risk deterioration using rules based engine for stage determination and option for manual reassignment
– Credit measures using Integrated PD/LGD modelling or from external source
– Multiple methods for allowance and provision calculation
Hedge Accounting Framework
The Hedge Accounting framework provides the ability to trigger the hedge accounting based on hedge effectiveness results fed from an external source.
The Hedge Accounting solution offers the following capability:
– To state the Hedge types
– To document the Hedge Relationships
– To define the Accounting Rules based on the Hedge types
– To post the Hedge Accounting Entries
Multiple-GAAP Accounting Platform
Provides the framework to support different GAAP accounting
Supports FASB91 for the recognition of fees and cost under US GAAP throughout the life-cycle of a loan.