New international accounting standards: Certified default risk valuations
On 1 January 2018, the new international accounting standards on IFRS 9-Financial Instruments will come into force. According to these standards, listed companies must recognize allowances for trade receivables on a forward-looking basis instead of on the basis of past experience, as was previously the case.
The new international accounting standards on IFRS 9 Financial Instruments will come into force in 2018. With "EH SmartReserve", Euler Hermes offers a service that reliably calculates the expected credit loss of a company and its subsidiaries in Germany and abroad. The results are based on a calculation methodology that is certified in accordance with international standards1.
"The analysis of default probabilities for corporate loans is our core competence," says Stefan Ruf, CEO of Euler Hermes Switzerland. "For companies with other business focuses, the implementation of the IFRS 9 rules is associated with high costs if the necessary research for a robust forecast has to be built up first. With EH SmartReserve, we can provide such companies with a certified calculation based on our data without them having to spend their own resources."
Realistic risk calculation in the balance sheet
The framework conditions for companies change when companies back their open receivables with forward-looking default probabilities under the new regulations. "Business activities in countries or in industries with above-average volatility in particular can quickly drive up the hedging requirement on balance sheets and then impact equity, company earnings or dividend payments," explains Ruf. "That's why a systematic, consistent and continuous calculation model is critical to accounting for realistic impairments and meeting accounting standards. And to do so without any nasty surprises at the end."
The EH SmartReserve calculation models are based on the extensive information provided by Euler Hermes. They comply with IFRS accounting standards and connect to the respective internal control systems of group accounting. The cost of the service varies according to the respective company set-up and needs.
1 International Standard for Assurance Engagements, IFRS Valuation of Receivables - Smart Reserve "IFRS Receivables Valuation".
