New finPOWER Accounting Ledgers Add-On
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.
Element Analysis
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.
Revenue and Cost elements
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.
Implementation
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.
Effective Yield Rate
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.
Daily Processing
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.