Two and a half months before the 'go-live' date, it's time to take stock.
On 1 January 2018 the time will have arrived and IFRS 9 will come into effect for the accounting for financial instruments. Superseding the current IAS 39 involves numerous implementation actions that are currently being worked on intensively at entity groups. Thus, two and a half months before the 'go-live' date, it's time to take stock.
Which key measures and actions should already have been successfully completed regarding transition to IFRS 9?
Let's first take a look at the 'Classification and measurement' project stage. In this phase, portfolios and financial instruments should have been set up and existing business models clearly defined by the 'key personnel'. It goes without saying that special items should have been clarified, for example the allocation of financial instruments in factoring agreements, and also appropriate backtesting routines implemented to monitor correct allocation to the business models. Furthermore, an assessment of the requirement to meet cash flow criteria (SPPI) at contract level of financial instruments should now have been completed and documented. In this regard, it must be ensured through appropriate design of controls and processes that cash flow criteria continue to be properly assessed at contract level.
Regarding the 'Impairment' project phase, most entities are still immersed in the process of finding and implementing models. As remaining time is tight for the worldwide roll-out of the new impairment rules, the following work steps at least should by now have been completed:
In contrast, entities are finding the implementation measures in the 'Hedge Accounting' project phase considerably easier. Requirements placed on the treasury management system (TMS) to distinguish between spot and forward designation, to calculate cost of hedging components – especially currency basis spreads – and to ensure appropriate accounting for cash flow hedge and cost of hedging reserve, should be achievable for an effective TMS. The definition of effective hedging relationships consistent with the respective risk management strategy should be implemented and the requirement fulfilled regarding what the entity understands by a narrow time frame for the occurrence of an underlying transaction.
Let's take a look at the final two project phases, 'Disclosures' and 'Transition'. The project phase for Disclosures places significant requirements on data availability and entities' financial reporting. At this stage of the transition project, the following items at least should have been identified: the adjustments to be made in the notes to the financial statements; whether necessary data for disclosure of required information is already available in the reporting system and which actions are necessary to ensure appropriate reporting functionalities by the 'go-live' date. Finally, the Transition phase remains. At the current point in time, implementation measures to archive and migrate data are a priority; in this context, the complexity of the purely technical transition components should not be underestimated. Necessary adjustment measures to the accounting system have been identified and reconciliation of the group reporting packages are in the final stage of completion.
There are still two and a half months for all remaining points – let's get to it.
Source: KPMG Corporate Treasury News, Edition 72, October 2017
Author: Ralph Schilling, Senior Manager, Finance Advisory, firstname.lastname@example.org
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