Finalyse - Composing Solutions for Finance


Finalyse - Composing solutions for Finance

To be applied as from January 2018, IFRS 9 replaces the previous IAS 39 standards.

Under the new standard, any financial instrument could be subject to three different measurement methods, leading to different impacts in the P&L statement. The categorization will follow a decision-tree process based on both portfolio’s business model and instrument’s payoff. 

With regards to the new impairment model, implemented IFRS 9 will impact investment decisions and create additional challenges in accounting and reporting functions. The new impairment methodology is forward-looking, requiring the reporting entity to report the changes in credit risk of financial institutions in a consistent way with the credit risk measurement methods.

In scope of this change we can assist you in two ways:

Classification & Measurement

Inappropriate classification of a financial instrument can have a dramatic impact on profit and loss statement. The new categorization process requires reporting entities to fulfil quantitative and qualitative criteria, for which the measurement process could be highly challenging. Thanks to our expertise in complex structured product valuation, we can assist you in building a formal investment canvas to identify the appropriate classification applicable to your financial assets.

New Impairment Model

IFRS 9 also brings a forward-looking expected credit loss model that will result in more timely recognition of loan losses and is a single model that is applicable to all financial instruments subject to impairment accounting.

The main objective of the new impairment requirements is to provide users of financial statements with more useful information about an entity’s expected credit losses on financial instruments. The model requires an entity to recognise expected credit losses at all times and to update the amount of expected credit losses recognised at each reporting date to reflect changes in the credit risk of financial instruments. Particularly, banks will move from 1 year EL to Life Time EL.

We provide

  • Fair value measurement
  • Other Comprehensive Income
  • Classification of financial assets
  • SPPI criteria
  • Business model criteria

We take a close look at

  • New impairment model and Expected Credit Losses calculation
  • Modelling of PD, LGD and EAD through time
  • Lifetime loss allowances and disclosure requirements
  • Change in credit risk assessment and staging criteria
  • Backtesting and validating ECL concepts

Benefits for your business

  • Update your investment guidelines with respect to IFRS 9 requirements
  • Implement a process of quantitative and qualitative assessment of the classification criteria
  • Anticipate profit and loss variability thanks to appropriate use of the Fair Value through Other Comprehensive Income classification

Benefits for your business

  • Guidance in the implementation of the 3-stage model for impairments
  • Proven know-how in credit risk measurement and advanced modelling techniques delivered by seasoned experts
  • Assistance in building a robust reporting stream for the disclosures of your loan loss allowances

If you are interested in these services, do not hesitate to contact Silvio Santarossa for more information.