The IFRS lull: firms must end box-ticking and start hand-shaking

The IFRS lull: firms must end box-ticking and start hand-shaking

A relative lull in transformative IFRS-related system implementations means that financial firms can relax a little. But not too much: now is the time to work strategically with other players to create real value from IFRS compliance.

Jay Vigneswaralingam ([email protected])

IFRS

Tactical vs. strategic

International Financial Reporting Standards (IFRS) have transformed the way that financial institutions (FIs) maintain and report their accounts, manage their risk, and use technology to help in these activities. In recent years the standards – issued by the International Accounting Standards Board (IASB) – have been coming thick and fast, affecting all types of FIs.

To adhere to the standards, FIs must change their accounting and reporting methods, implement new technology solutions and processes, and recruit people with the right skills to meet the new challenges. During IFRS implementations, FIs have divided broadly into two groups, depending on their approach to compliance:

  • A tactical approach – aiming for quick implementations to comply with the requirements. 
  • A strategic approach to implementation, including scope for their organizations’ processes and technology to adapt to future requirements and standards.

FIs have been rushing to acquire technology solutions to help them meet the standards’ requirements before the implementation deadlines, and the relative deluge of standards in recent years has meant that many have opted for the first approach, simply to keep up. But the situation could be changing.

A lull means time for more strategic thinking

The IASB has released numerous standards since 2005, but after the implementation of IFRS 17 in 2022, developing new IFRS standards will be relatively low on its list of short-term priorities – accounting for only three new projects in the next few months (see Figure 1). Most forthcoming projects will be ‘maintenance’ projects, meaning that amendments to existing standards will soon become the main focus of regulatory activity.

For FIs this means something of a decline in the pace of oncoming standards, and a lull during which they will have more time to take stock.

Figure 1: The IASB’s scheduled IFRS projects for the next 18 months (as of 5 June 2019)

The IASB’s scheduled IFRS projects for the next 18 months (as of 5 June 2019)

 

Source: Chartis Research


FIs can take this opportunity to review how they choose and develop systems within their existing infrastructure, and decide which implementation method to follow. The approaches FIs have taken in the past could dictate how they will behave now: either tactically, responding to standards as they are introduced; or strategically, considering how the standards affect their organizations, and developing plans to accommodate future standards and amendments.

FIs will need to be proactive and move toward a strategic approach to compliance. Taking a tactical approach will put them at a competitive disadvantage compared with FIs that actively assess their ongoing operations and how they will be affected by current and future standards.

As part of this more strategic view, FIs must also understand the true potential of newly implemented technology, and how it can be used to create efficiencies across the business. Key to their strategy should be an assessment of the impact of standards on business processes and technology integration.

  • Business processes. IFRS 9 and 17 herald a new era of ‘risk-aware’ accounting, in which FIs’ risk and finance divisions must transform their approach to sharing data and adapting to the same technology solutions.
  • Technology integration. FIs need end-to-end solutions to comply with the new standards, so various departments must now align their technology requirements. In the case of IFRS 17, for example, this means integrating the actuarial system with the modeling database.

Time to team up

To achieve the best results with their strategies, FIs must concentrate on preparation and collaboration.

Preparation. FIs will now have more time to:

Collaboration. FIs need to collaborate as much as possible with:

  • Vendors. Vendors will be keeping a close eye on future regulatory developments to inform their product pipelines and updates to existing solutions. By collaborating more closely and having more input into existing vendor partnerships, FIs can help to tailor solutions to their requirements, and should find it easier to integrate new solutions and updates into their technology infrastructures. Ultimately they must be able to implement technology systems that meet their requirements, ensure they maximize the potential of their solutions, and are flexible enough to adapt to future changes.
  • Regulators/standard-setters. By providing industry feedback and staying closer to developments, FIs can attain a stronger position from which to respond to changes as they’re introduced. Not only will this enhance their strategic approach, it will also enable them to provide input into amendments aimed at helping them solve their particular problems. By establishing a dialogue with standard-setters, FIs can also try to gain a better view of planned changes to the standards, and prepare for them more effectively.

The notion that FIs should view regulations and standards as an opportunity rather than merely a compliance exercise is rapidly becoming a cliché. Nevertheless, when it comes to IFRS, a genuine opportunity exists for FIs and others to work together to maximize the potential of their partnerships and implemented solutions.

Further reading

IFRS 17: The next stage in risk-aware accounting

IFRS 17 Technology Solutions, 2019: Market and Vendor Landscape 2019

IFRS 9 Technology Solutions: Market Update 2017

Points of View are short articles in which members of the Chartis team express their opinions on relevant topics in the risk technology marketplace. Chartis is a trading name of Infopro Digital Services Limited, whose branded publications consist of the opinions of its research analysts and should not be construed as advice.

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