Solutions / Regulation
IFRS 9
Prepare for accounting change
Introduced in the wake of the financial crisis of 2008-2009, IFRS 9 drastically changes the way financial instruments are accounted for and represents one of the most seismic shifts in the history of accounting because of its broad reach and technical requirements.
IFRS 9 updates the model for classification and measurement of financial instruments. Entities must consider both the nature of the instruments and how they are managed. The new IFRS 9 impairment model represents a fundamental shift away from traditional methods, in which companies account for credit risk only after a loss is incurred, toward a more predictive model-based approach. The new hedge accounting model is more principle based and seeks to better represent an entity’s risk management activities in the financial statements. Below, we review some of the critical components of IFRS 9’s new approach.
SOC 3 Certification by Ernst & Young (EY)
E&Y has examined management’s assertion that Bloomberg LP, as of August 31st 2017, maintained effective control processes over IFRS 9 and determined that assertion to be fairly stated.
Solely Payments of Principal and Interest (SPPI)
The SPPI test — necessary for determining the appropriate classification and measurement of financial assets.
General Hedge Accounting
IFRS 9 should allow a wider range of economic hedging strategies to qualify for hedge accounting, but the shift to a principles based approach will undoubtedly result in implementation challenges, including how to apply the new hedge effectiveness criteria, which will require judgment. Visit HEFF<GO>.
Expected Credit Loss (ECL)
The new impairment or “expected credit loss” (ECL) standard requires estimating and recording provisions for future expectations of credit losses.
Classification SPPI Testing
Bloomberg is uniquely positioned to help clients navigate the IFRS 9 maze to implement the new standard.
Efficient Daily SPPI Eligibility Assessment
Bloomberg’s IFRS 9 SPPI solution provides firms with an automated classification mechanism to determine whether financial securities pass or fail the SPPI test and provides the reasoning behind that conclusion.
Global Data
Bloomberg leverages its extensive global securities database to identify SPPI features and return the result for each unique security. With its extensive database of security data.
- More than 350,000 active fixed income instruments
- Over 300,000 asset-backed securities
- Over 1 million agency pools
- Over 900,000 municipal bonds
- More than 70 security field characteristics are reviewed to identify features that may result in cash flows that are not strictly payments of principal or interest
Helping clients implement IFRS 9
The Bloomberg solution delivers an accurate and consistent SPPI assessment, eliminating the need for subjective interpretation or additional finance and treasury resources.
Hedge Accounting
Bloomberg Hedge Accounting offers an integrated, automated solution that helps to align hedge accounting with hedging policies and ensures ease of compliance with IFRS 9 requirements. Our solution is developed to reflect Big 4 audit firm interpretations and standard market practice. Visit HEFF<GO>.
Flexible hedge designation
Bloomberg Hedge Accounting supports all risk designations and hedge types. Our solution allows flexible hedge designation, including a combination of instruments across different asset classes.
Transparent independent valuations
Bloomberg hedge accounting utilizes Bloomberg’s market leading valuation models. Robust documentation of valuation models provides transparency for auditors, who already use Bloomberg’s models as the benchmark for derivative valuations.
Comprehensive effectiveness testing
The Bloomberg Hedge Accounting solution supports an extensive list of effectiveness testing methodologies, including those aligned with the changes introduced by IFRS 9, such as forward looking Scenario Analysis. These tests can be easily batch run at each reporting date to support the assertion that the hedge is highly effective.
SOC1 certified
Bloomberg Hedge Accounting is SOC1 certified, allowing clients’ auditors to rely on the control framework established by Bloomberg for the generation of records for financial transactions recognized in the user’s financial statements.
Impairment Modeling – ECL
The Bloomberg ECL solution saves time, money and operational cost – not as a one-off, but continuously, as credit risk models need to be validated and enhanced annually.
Efficiencies
Bloomberg’s offering delivers an automated solution, allowing users to focus their scarce resources on more core portfolios and eliminating the need to develop their own internal models.
Ease of implementation & consumption
Our solution feeds directly into existing accounting workflows, with daily updates of data.
Proven credit risk models
The ECL solution leverages existing default risk models to create ECL values.
Industry consensus & audibility
The product directly incorporates the accounting literature of the IASB and EBA, the accounting interpretations of the large accounting firms and market consensus interpretations of our extensive client base.
Transparency & auditability
Bloomberg’s output delivers in-depth information on cash flows, discount rates, loss amounts and other factors, providing transparency into our expected loss calculation methodology.