Dear
As we saw last week, Accounting Principles leave many opportunities for building hiding mechanisms, necessary for inflating financial bubbles.
http://sapbank.blogspot.com.es/2013/07/collaterals-and-underlines-accounting.html
As the objective is increasing transparency, the new regulatory framework should overpass the limited capacity of disclosure offered by the General Ledger and look at the foundation of the Value Generation of the Financial Assets.
While the value of an asset depends on its long-term capacity of cash-flows generation, that generation comes from two economic magnitudes of the Financial Asset; the Underline and the Collateral.
This approach is supported in some Accounting Principles, but in a limited way. For instance, in the exercise of an option, I can determine the value of the Option according to the value of the Underline.
We should go further than that, but with the flat structure/approach of the General Ledger, we have many limitations to support multi-valuation approaches of the Assets, including reconciliation techniques of these valuations. I wrote something about those limitations months ago.
http://sapbank.blogspot.co.uk/2012/09/why-de-general-ledger-is-not-enough.html
The Financial Database of Bank Analyzer permits to keep the value of collaterals and underlines in different but connected objects in the SDL and the RDL, and the multi-accounting capabilities of Bank Analyzer-AFI permit to build calculation procedures which read and combine those values with the results of the cash-flows generation engine. The opportunities of building alternative accounting systems which reconciles the expected cash-flows of an asset with the value of its Underline or Collateral are abundant.
In my opinion, this is a very important reason to consider Bank Analyzer as the central hub of Risk and Accounting magnitudes of the Bank. We expect the regulation is going to be harder, and IT investment decisions cannot be taken according to the capacity of the infrastructure for supporting current requirements, but being the foundation for covering the future regulatory framework, that will emerge as a consequence of the systemic crisis.
This humble proposal is just an idea on that direction.
Looking forward to know your opinions.
K. Regards.
Ferran.
As we saw last week, Accounting Principles leave many opportunities for building hiding mechanisms, necessary for inflating financial bubbles.
http://sapbank.blogspot.com.es/2013/07/collaterals-and-underlines-accounting.html
As the objective is increasing transparency, the new regulatory framework should overpass the limited capacity of disclosure offered by the General Ledger and look at the foundation of the Value Generation of the Financial Assets.
While the value of an asset depends on its long-term capacity of cash-flows generation, that generation comes from two economic magnitudes of the Financial Asset; the Underline and the Collateral.
This approach is supported in some Accounting Principles, but in a limited way. For instance, in the exercise of an option, I can determine the value of the Option according to the value of the Underline.
We should go further than that, but with the flat structure/approach of the General Ledger, we have many limitations to support multi-valuation approaches of the Assets, including reconciliation techniques of these valuations. I wrote something about those limitations months ago.
http://sapbank.blogspot.co.uk/2012/09/why-de-general-ledger-is-not-enough.html
The Financial Database of Bank Analyzer permits to keep the value of collaterals and underlines in different but connected objects in the SDL and the RDL, and the multi-accounting capabilities of Bank Analyzer-AFI permit to build calculation procedures which read and combine those values with the results of the cash-flows generation engine. The opportunities of building alternative accounting systems which reconciles the expected cash-flows of an asset with the value of its Underline or Collateral are abundant.
In my opinion, this is a very important reason to consider Bank Analyzer as the central hub of Risk and Accounting magnitudes of the Bank. We expect the regulation is going to be harder, and IT investment decisions cannot be taken according to the capacity of the infrastructure for supporting current requirements, but being the foundation for covering the future regulatory framework, that will emerge as a consequence of the systemic crisis.
This humble proposal is just an idea on that direction.
Looking forward to know your opinions.
K. Regards.
Ferran.
No comments:
Post a Comment