Adopting the International Financial Reporting Standards (IFRS) will require many finance companies to recognise deferred revenue from their lending activities over the term of the loans involved. The finPOWER
Accounting Ledgers Add-On gives you the toolset to amortise both revenue and
cost items in accordance with IFRS.
Each element, being the building blocks of a loan, can be earned
in a number of different ways: Proportional, Rule of 78, Sum of instalments,
Actuarial and Effective Yield. This Earned Basis then determines how the element
is to be amortised in the General Ledger.
Additionally each element can be earned over a specified time
frame: either the full term of the loan; a specified time frame; the interest
free term of the loan or the interest term of the loan.
By providing differentiation at the Element level, different
components of the same loan can be treated differently when accounting for both
revenue and costs. This gives you greater accuracy and control in the General
Ledger.
The IFRS deals with deferred revenue and it is important to match
those revenue streams with their associated cost streams. For elements such as
Insurance premiums, the Accounting Ledgers Add-On enables you to exactly match
the revenue earned from them with the direct costs associated with that revenue
source. Costs not directly associated with a revenue stream can also be
amortised.
Implementing IFRS Standards into an existing loan ledger could
potentially cause issues with prior dated accounting periods and revenue
analysis but finPOWER has developed workflows to allow the Accounting Ledgers to
be implemented in such a way as to cause a minimum disruption.
IFRS 7 Financial Instruments: Disclosures, requires amortisation
of certain charges and costs based on the Effective Interest Rate of the Loan.
This is a complicated formula based on the cash flows and profit within each
instalment period. The finPOWER Accounting Ledgers Add-On calculates this
formula automatically but provides simple tools to verify the calculations for
Accountants and external auditors.
Each element to be amortised on a Loan has its own Accounting
Ledger. This ledger clearly shows the value to be amortised per period and any
amounts that have already been transferred to the General Ledger. Daily
processing is simply a matter of completing a General Ledger Export to emPOWER*
and any relevant ledgers will automatically be included.
*If the Accounting Interface Add-On has been purchased other GL export formats will be available.
