1. IFRS VBox¶
Software for automated Valuation, Accounting, Credit Risk and Financial Reporting.
Accurate and standard compliant with IFRS 9, IFRS 16, IFRS 17.
High performance for large portfolios of more than 10 Million accounts.
IFRS 9 Solution Architecture¶
1.1. Import of Financial and Non-Financial Instruments¶
From the Core-banking Systems and Data Sources, Manticore ETL-VBox will import:
Instrument Properties (Type, Origination Date, Maturity Date, Currency)
IFRS Category and SPPI Test
Credit Risk Parameters (Life Time PD Curve, Recovery Assumption, Impairment Stage)
Disbursement
Repayment Schedule
Interest Accrual and Interest Payment Schedule
Attributable Fees and Charges
Purchase or Sale Transactions (incl. Premiums or Discounts)
Market Prices and Yield Curves
Reporting Dimensions, Attributes and Properties (e.g. Cost and Profit Centre)
ETL-VBox can read data from any Database, Spreadsheet, CSV- or Flat-File, JSON- or XML-File or Website.
1.2. Cash Flow Schedules¶
Using the integrated Cash Flow Engine, IFRS-VBox will roll-out comprehensive Cash Flow Schedules:
Contract vs. Settlement vs. Economic Expectation
International Holiday Calendars and Business Day Conventions
Various Disbursement and Repayment Conventions
Various Interest Accrual and Payment Methods
Complex Interest Rate Fixing Agreements (linked to Market Rates, FX-Rates, Indices, Commodity Prices etc.)
Contract:
257258
Value date Settl date n Rate T Amount Cur Commitment Principal Start End
----------- ----------- --- -------- --- --------------- --- --------------- --------------- ----------- -----------
2022-06-27 0 7.50000
2022-06-27 2022-06-27 D -20000000.00 USD 20000000.00 -20000000.00 2022-06-27 2022-09-26
2022-09-26 2022-09-26 I 373972.60 USD 20000000.00 -20000000.00 2022-06-27 2022-09-26
2022-09-26 91 7.50000
2022-09-26 2022-09-26 R 20000000.00 USD 20000000.00 0.00 2022-09-26 2022-09-26
----------- ----------- --- -------- --- --------------- --- --------------- --------------- ----------- -----------
Settlement:
257258
Value date Settl date n Rate T Amount Cur Commitment Principal Start End
----------- ----------- --- -------- --- --------------- --- --------------- --------------- ----------- -----------
2022-06-27 0 7.50000
2022-06-27 2022-06-27 D -20000000.00 USD 20000000.00 -20000000.00 2022-06-27 2022-09-26
2022-09-26 2022-09-26 I 373972.60 USD 20000000.00 -20000000.00 2022-06-27 2022-09-26
2022-07-05 8 7.50000
2022-09-26 83 7.50000
2022-09-26 2022-09-26 R 20000000.00 USD 20000000.00 0.00 2022-09-26 2022-09-26
----------- ----------- --- -------- --- --------------- --- --------------- --------------- ----------- -----------
Date Accrued Principal Smoothing
2022-07-05 -32876.71 -20000000.00 277.05
Fee Type EIR Excl EIR Incl PV Excl PV Incl Unamortized Start Date End Date
7.43074 7.43074 20032599.66 20032599.66 0.00
----------- ----------- --- -------- --- --------------- --- --------------- --------------- ----------- -----------
Latest Spread 5.86784 FV 32 M-t-Model -20032604.15
Average Spread 5.86784 FV 39 M-t-Model -20032604.15
1.3. Valuation and Measurement¶
Based on the Contractual Cash Flows, IFRS VBox will calculate the Effective Interest Rate (EIR):
\[PV_{i-1} = \sum_{t=i}^n CF_t \cdot e^{ \frac {-y \cdot TG_t} {365}}\]
When the EIR is known, the Amortised Cost can be calculated as Total Present Value of the future Expected Cash Flows (based on the actual settlement).
\[PV_i = \sum_{t=i}^n CF_t \cdot e^{ \frac {-y \cdot TG_t} {365}}\]
The EIR will be re-calculated whenever the Contract is changed (e.g. Interest Rate adjustment, Purchase or Disbursement). In case of Unexpected Changes (e.g. Late/Early Payments, Sales) the Amortisation Schedule Changes and the difference will be recognised as a Profit or Loss.
Cash Flow Schedule Events¶
Financial Instruments subject to Credit Risk will need a Provision according to the Expected Credit Loss (ECL) based on the following Credit Risk Parameters:
Impairment Stage (based on Deterioration of Credit Risk since Origination)
Credit Conversion Factor (CCF) for Contingent Portions
Life Time Probability of Default (PD) Curve Point in Time (PIT)
Collateral
Recovery Expectation
Note
Those Credit Risk Parameters can be modelled in Risk VBox.
Financial Instruments at Fair Value will be measured
either Mark-to-Market based on Quotes in liquid markets
or Mark-to-Model based on Discounted Future Cash Flows — using a Risk Free Yield Curve and the Credit Spread.
\[FV_i = \sum_{t=i}^n CF_t \cdot e^{ \frac {-(y_i + CS) \cdot TG_t} {365}}\]
Note
IFRS VBox supports Bootstrapping of Zero Coupon Curves from observed Spot Rates. It also helps to determine the applicable Credit Spreads by comparing the actually Observed Prices against the Risk Free Yield Curves.
During the Valuation, IFRS VBox will calculate more than 250 different Financial Measures for each Instrument. All those measures are written into the Reporting Data-marts, from where they will feed the Accounting- and Reporting Engines.
1.4. General Ledger¶
IFRS VBox includes a comprehensive General Ledger which supports:
Parallel Multi-GAAP
Configurable Charter of Accounts (CoA) as per GAAP
Configurable Accounting Events and Account Mapping Rules as per GAAP
Interactive Drill down, Trace and Reconciliation
Accounting Events: As per single instrument, the software will observe the Financial Measures over time and generate Postings of the Difference, whenever a change occurs.
Account Mapping Rules: For each Accounting Event, the Debit and Credit Lines can be mapped — either statically or dynamically based on the Instrument’s properties (e.g. Currency, Product Codes, Customer Types, Fee Types).
Although completely configurable and subject to customisation, Manticore will provide its customers with IFRS9 Templates from Best Practise.
1.5. Financial and Regulatory Reporting¶
Since all measurement and posting in IFRS VBox is done as per single Instrument or Contract, VBox can filter and aggregate the figures as per Dimension or Reporting Attribute. Thus it can generate any kind of report such as:
Balance Sheet, Income Statement, Cash Flow Statement etc.
Provisioning, Capital Adequacy, Concentration Risk, Mitigation
Disclosure and Notes
Spreadsheet Form Reports (“Excel”), Band/Sub Reports and XML/XBRL
The Report Information is stored in well documented Comprehensive Data Marts from where it can be accessed with the Internal Report Builder or SQL or any Third Party Report Application. Using ETL VBox, those data can also be pushed into Central Data Warehouses.
Reports are pre-built and archived on a daily basis. Alternatively they can be built on demand and with parameters or filters.
1.6. IFRS 9 Financial Contracts¶
Under IFRS 9, financial instruments are classified into three categories: amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL). The classification of a financial instrument depends on the entity’s business model for managing the instrument and the characteristics of the instrument itself.
Amortized cost financial instruments are those that are held for the purpose of collecting the contractual cash flows and are not held for sale. They are measured at amortized cost, which is the amount paid to acquire the instrument, adjusted for any discounts or premiums and any direct costs of issuance.
FVOCI financial instruments are those that are held for the purpose of collecting the contractual cash flows and for sale in the near term. They are measured at fair value, with changes in fair value recognized in other comprehensive income (OCI).
FVTPL financial instruments are those that are held for the purpose of selling in the near term or those that are held for trading purposes. They are measured at fair value, with changes in fair value recognized in profit or loss (PL).
IFRS-VBox if compliant with IFRS 9 and can fair-value, post and disclose Financial Contracts such as Loans, Overdrafts, Debt-Securities, Term-Deposits, Borrowings, Swaps, Guarantees and Letters of Credit.
1.7. IFRS 16 Lease Agreements¶
IFRS 16 is a standard issued by the International Accounting Standards Board (IASB) that applies to the accounting of leases. It replaces the previous standard, IAS 17, which was considered to be too complex and lacking in transparency.
The main objective of IFRS 16 is to provide a single, principles-based standard for the accounting of leases that will ensure that lessees and lessors provide relevant and reliable information to their customers, regulators, and other stakeholders. It aims to provide a more transparent and consistent basis for the accounting of leases, and to improve the comparability of the financial statements of entities that enter into leases.
Under IFRS 16, a lease is defined as a contract in which the lessor conveys the right to use an asset to the lessee in exchange for consideration. Leases are classified as either finance leases (which transfer substantially all the risks and rewards of ownership to the lessee) or operating leases (which do not transfer substantially all the risks and rewards of ownership).
Finance leases are required to be recognized as a liability (the “lease liability”) and an asset (the “right-of-use asset”) on the balance sheet of the lessee. The lease liability represents the present value of the future lease payments, while the right-of-use asset represents the lessee’s right to use the underlying asset. The lease liability is reduced and the right-of-use asset is depreciated over the lease term.
Operating leases, on the other hand, are not recognized on the balance sheet of the lessee. Instead, the lease payments are recognized as an expense on the income statement on a straight-line basis over the lease term.
Overall, the implementation of IFRS 16 is intended to provide a more accurate and transparent picture of an entity’s financial position and performance, and to improve the comparability of the financial statements of entities that enter into leases.
IFRS-VBox if compliant with IFRS 16 and can fair-value, post and disclose Lease Agreements.
1.8. IFRS 17 Insurance Contracts¶
IFRS 17 replaces the previous standard, IFRS 4, which was considered to be inadequate for the accounting of insurance contracts.
The main objective of IFRS 17 is to provide a single, principles-based standard for the accounting of insurance contracts that will ensure that insurance companies provide relevant and reliable information to their customers, regulators, and other stakeholders. It aims to provide a more transparent and consistent basis for the accounting of insurance contracts, and to improve the comparability of the financial statements of insurance companies.
The fair value of an insurance contract is determined using actuarial techniques, which involve the estimation of future cash flows expected to be received under the contract, taking into account the terms and conditions of the contract and any relevant external factors (such as market conditions and interest rates). The present value of these expected cash flows is known as the “contractual service margin”, and represents the fair value of the insurance contract.
Actuarial techniques are methods used by actuaries to analyze and assess risk and uncertainty in financial, economic, and other contexts. Actuaries use these techniques to calculate the probability and likely cost of future events, such as the occurrence of an insurance claim.
Some common actuarial techniques include:
Probability calculations: Actuaries use probability theory to estimate the likelihood of different events occurring. For example, an actuary might calculate the probability of a person making an insurance claim based on factors such as their age, medical history, and the type of insurance coverage they have.
Statistical analysis: Actuaries use statistical methods to analyze large amounts of data and identify patterns and trends. This can help them to make more accurate predictions about future events.
Financial modeling: Actuaries use financial modeling techniques to estimate the future cash flows that are likely to be received or paid under different scenarios. This can help them to determine the fair value of an insurance contract, or to assess the financial viability of a new product or business venture.
Overall, actuarial techniques are used to assess and manage risk and uncertainty in a variety of contexts, including insurance, finance, and investment.
The fair value of an insurance contract will change over time as the terms and conditions of the contract change, or as the estimates of future cash flows are revised. These changes in the fair value of an insurance contract are required to be recognized in the income statement.
Overall, the fair value measurement of insurance contracts under IFRS 17 is intended to provide a more accurate and transparent picture of an insurance company’s financial position and performance, and to improve the comparability of the financial statements of insurance companies.
IFRS-VBox if compliant with IFRS 17 and can fair-value, post and disclose Insurance Contracts and Re-Insurance Contracts.
Example Life insurance:
The contractual service margin (CSM) is the present value of the future cash flows expected to be received under an insurance contract, as required to be recognized under IFRS 17.
In the case of a life insurance contract, the CSM represents the present value of the future premiums, claims, and other cash flows expected to be received or paid under the contract.
To calculate the CSM for a life insurance contract, an actuary would first need to estimate the future cash flows that are expected to be received or paid under the contract. This would involve taking into account factors such as the terms and conditions of the contract, the characteristics of the policyholder (such as their age and health status), and any relevant external factors (such as market conditions and interest rates).
Once the future cash flows have been estimated, the actuary would then need to determine the present value of these cash flows using a suitable discount rate. The present value is calculated by applying the discount rate to each future cash flow, taking into account the time value of money (i.e., the idea that a dollar received in the future is worth less than a dollar received today).
The CSM is then calculated as the sum of the present values of the future cash flows. It is important to note that the CSM will change over time as the estimates of the future cash flows are revised, or as the terms and conditions of the contract change.
Overall, the calculation of the CSM for a life insurance contract involves the use of actuarial techniques to estimate the future cash flows expected to be received or paid under the contract, and to determine their present value.