The Small Business Experience Feedback from Direct Feedback from - - PowerPoint PPT Presentation

The Small Business Experience

Direct experience – small credit union Feedback from

• thers – 2

small retail & distribution businesses Feedback from

• thers – small

property rental business

The Perspective

Resources Data Requirements The Impact Recap Starting

Starting

Resources Data Requirements The Impact Recap Starting

• After starting the work of IFRS 9, many

companies – not just in Trinidad but throughout the world – considered an earlier start would have been better; same is true for smaller companies.

• Relatively early awareness of IFRS 9 and that

there could be a large impact

• General feeling that IFRS 9 was targeted mainly

to large financial institutions, so early awareness did not always translate to early action

Starting

Resources Data Requirements The Impact Recap Starting

• Initially insufficient consideration given to:
• Trade receivables
• Intercompany receivables
• Loans to related parties
• Statutory receivables
• Some small businesses did not move from

discussion to action until up to 6 months before their financial year end.

• Still, many small businesses commendably

completed their IFRS 9 impact analysis in a reasonable timeframe

Resources (model development only)

Resources Data Requirements The Impact Recap Starting

• Resources were a challenge for small businesses

Going it alone

Time consuming Additional audit time spent Challenges with the auditors Cost effective?

Hiring a consultant

Relatively efficient No significant additional audit time Manageable challenges with auditors Expensive

Data Requirements

Resources Data Requirements The Impact Recap Starting

• By far the biggest challenge of the IFRS 9

implementation – whether the general approach

• r simplified approach was applied

Data Requirements

Simplified Model – Identifying Trends was Tricky

• Asked the question: For every credit sale

made in X month, is it still outstanding 6 months later? One year later? Two years later? Did we eventually have to write it off?

• Smaller pool of customers so one-off events

had a more significant impact on the receivable portfolio

• Impact of “bumper” years
• System change-overs made it difficult to

access older information

Data Requirements

Simplified Model – Identifying Trends was Tricky

• Even where consultants were hired and the

development of the model was fairly efficient, data gathering and analysis still was relatively time consuming and could not be exclusively done by the consultant

• Data gathering was eventually completed, in

some cases, reasonable assumptions needed to be made, and some refining may have had to be done during the audit

Data Requirements

Simplified Model – Rebuttable presumptions

• So what if it’s outstanding 2 years later? Some

customers still pay – e.g. government agencies; specific customers with special relationships

• Tricky situation with intercompany or related

party loans

• Conclusions:
• Presumptions are rebuttable once

evidence is provided

• Ability to take related party loans for

granted far less possible

Data Requirements

General Model – Data availability

• Obtain information about customers at loan

inception:

• Sufficient to determine whether they meet

minimum loan qualification criteria

• Not always sufficient to stratify customers into

risk buckets

• Some useful information is collected but not

stored in a way that can be easily used to stratify customers into risk buckets

• Do not regularly update borrower-specific

information beyond the requirements of KYC information for regulatory compliance purposes

Data Requirements

General Model – Data availability

• Opportunity to update customer information
• Opportunity to refine how we look at the riskiness
• f customers
• Where there was insufficient time to achieve this

“compliance +” approach, these exercises were flagged for later completion

Data Requirements

Either Model – Forward Looking Information

• Obtaining macroeconomic indicators re:

forward-looking information was relatively easy

• Translating FLI into an impact on the

Probability of Default was very subjective

The Impact

Resources Data Requirements The Impact Recap Starting

• Several commented on the history of provisions

for default:

• A matrix method of provision was popular

10, 15, 20 years ago.

• Gradually shifted to specific provisions

based on impairment indicators

• Shifted back to a matrix method
• A lot of work was required to demonstrate that

the impact was relatively minimal once there were already a strong provisioning process and adequate control on collection of outstanding receivables

• The largest impact existed for long-outstanding

related party debts.

Recap

Resources Data Requirements The Impact Recap Starting

• Early start is always better even where impact is

likely to be minimal

• Doing the implementation in-house versus hiring

a consultant has different pros and cons

• Data requirements and sourcing is almost always

a challenge

• Even where the impact is minimal, proving this

adjustment is appropriate is extremely important