Disconnected computer systems are common in the complicated business of banking and often prohibit the true fair value reporting required by the International Financial Reporting Standards (IFRS).
Under the IFRS, banks must be able to take many financial instruments held by the bank as an asset or liability and show what they would fetch if sold today. To date, there has been a lot of estimation and much left open to interpretation. This needs to change.
By the time transactional data reaches the general ledger, it has often been aggregated to a very high level and processed in ways that are not clear to the outsider.
For example, in some cases, there is no way to trace back from 'loans' in the ledger to what the reasoning was regarding individual loans that led to the lost reserves assigned to them collectively. IFRS puts renewed pressure on finance and risk heads to work across departmental borders to provide transparency.
For this to happen and to obtain true transparency, banks need to keep both the transaction detail and the rationale regarding their treatment. The disconnected systems must be made to 'talk'.
An accounting hub that co-exists with, yet augments, existing core banking systems is needed to tie all of the bank's information together and act as a single source of all postings to the general ledger. Using an accounting hub allows calculations to be retained for audit purposes, which is vital for IFRS compliance.
Waves of accounting and regulatory changes are on the horizon as the industry moves towards risk-adjusting reporting. Some of the first banks to deploy IFRS have lost revenue and set themselves up for increasing amounts of incremental work and expense in the future by not taking a strategic approach and overhauling their system design at outset. Tactical solutions ultimately cost more in time, effort and lost opportunity. It's time to think strategically about IFRS implementation.