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

The Small Business Experience Feedback from Direct Feedback from others – 2 experience – others – small small retail & small credit property distribution union rental business businesses

The Perspective Resources Data Starting Requirements Recap The Impact

Starting • After starting the work of IFRS 9, many Resources companies – not just in Trinidad but throughout the world – considered an earlier start would have been better; same is true for smaller companies. Data Starting Requirements • 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 Recap The Impact

Starting • Initially insufficient consideration given to: • Resources Trade receivables • Intercompany receivables • Loans to related parties • Statutory receivables Data Starting Requirements • 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 Recap The Impact

Resources (model development only) • Resources were a challenge for small businesses Resources Going it Hiring a alone consultant Data Starting Requirements Time consuming Relatively efficient Additional audit time No significant spent additional audit time Challenges with the Manageable challenges auditors with auditors Recap The Impact Cost effective? Expensive

Data Requirements • By far the biggest challenge of the IFRS 9 Resources implementation – whether the general approach or simplified approach was applied Data Starting Requirements Recap The Impact

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 of 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 • Several commented on the history of provisions Resources for default: • A matrix method of provision was popular 10, 15, 20 years ago. • Gradually shifted to specific provisions Data based on impairment indicators Starting Requirements • 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 Recap The Impact • The largest impact existed for long-outstanding related party debts.

Recap • Early start is always better even where impact is Resources likely to be minimal • Doing the implementation in-house versus hiring a consultant has different pros and cons Data Starting Requirements • Data requirements and sourcing is almost always a challenge • Even where the impact is minimal, proving this adjustment is appropriate is extremely important Recap The Impact