January live date for IFRS 9 accounting standard puts spotlight on asset manager systems

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After almost a decade in the offing, the IFRS 9 Financial Instruments accounting standard will finally become mandatorily applicable for financial services organizations as of January 1, 2018.

Why does this matter?

IFRS 9 marks a major change to the way financial instruments must be treated under the International Accounting Standards Board’s (IASB) accounting principles – principles that many markets around the world have now adopted. So it’s vital firms have the accounting capabilities to be able to comply.

What does IFRS 9 mean for asset managers?

IFRS 9 was introduced as part of the IASB’s response to the financial crisis. Effectively it comprises three accounting standards in one:

  1. Classification and measurement – This first phase introduced new requirements for classifying and measuring financial assets and liabilities, to make financial statements more fair value-centric.
  2. Hedge accounting – The standard adopts a more principles-based approach to hedge accounting, while expanding the eligibility of hedged items to help companies’ financial statements better reflect their risk management activities.
  3. Impairment – Incorporates a new expected loss impairment model, designed to provide for ‘expected’ rather than ‘incurred’ losses.

The impairment part of the project proved particularly difficult though.

The big stumbling block was that the IASB and its US-based counterpart, the Financial Accounting Standards Board (FASB) – which sets the Generally Accepted Accounting Principles (GAAP) standards – struggled to align their approaches. That led to extensive deliberation and revisions. In the end, although both have pursued expected rather than incurred loss models, how that loss is measured varies markedly.

And it’s not just impairment. While long-running efforts by the IASB and FASB to achieve convergence between the IFRS and US GAAP standards have achieved some notable successes, in other areas we are left with significant disparities.

Which creates a problem for the huge number of asset management firms with international reporting obligations, since they will need the operational and technology flexibility to support multiple accounting standards.

How SS&C Advent can help

Fortunately, SS&C Advent’s Geneva platform has that flexibility built in.

Powerful native functionality enables users to produce accurate, on-the-fly data in many different formats, without needing multiple, standard-specific sets of records or general ledgers. As a result, firms can apply the different accounting rules to their funds on an ad hoc basis, letting you create multiple reporting perspectives on the same underlying investment data – making reporting in both the IFRS and GAAP standards possible with a single system.

This database flexibility also ensures Geneva will remain compliant even when new accounting standards are introduced. So whatever standards developments or divergences occur down the line, Geneva can future proof your firm against the expense and challenges that change brings.

For more information, please read our white paper.


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Posted in Advent Software, Compliance, Hedge Funds

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