Effective Interest Rates
Whistlebrook EIR will produce the necessary output to allow your business to conform to FRS102 and IFRS9 accounting standards on income recognition.
EFFECTIVE INTEREST RATES OVERVIEW
The system provides a solution for firms to satisfy the effective interest rate (WBEIR) requirements of UK GAAP and IFRS. Use of the system will ensure that interest is recognised at the EIR based on an expected cash flow profile of a residential mortgage or a retail savings product (e.g. stepped rate bond). Fees and costs amortisation over the average life are also handled.
The system includes a hierarchy which means that assumptions, income and cost recognition can be at an account, product, product sub group or product group level.
Changes to expected behaviour such as prepayments, reversion period length and losses are easily dealt with.
- EIR is based on an expected cash flow profile. Where the anticipated customer behaviour changes, future profiles need to be recalculated. That can be time consuming.
- Responding to ‘what if different assumptions had been made’ questions is not without sizeable effort.
- Where all interest is paid at maturity, the amount to recognise each month is not obvious.
- Scenarios with different assumptions (e.g. losses, prepayments, average life, rate changes) can be run easily and will show the impact on income and cost recognition.
- User and system defined outputs can be produced.
- Simplicity, combined with a hierarchy that reduces the amount of data entry, decreases the time and effort associated with EIR.
- Expected cash flow and EIR profiles are visible at each reporting date and help to explain the amount of an EIR adjustment, necessary at a given point.
Whistlebrook’s EIR system is flexible and simple to use. It reduces the demands of EIR by allowing changes to be made to customer behavioural assumptions and then recalculate any necessary adjustments to income and cost recognition. ‘What if scenario’ questions are easy to answer. The system includes a hierarchy that allows users to tailor the inputs and outputs as required.
Cash flow and EIR expected profiles are shown and explain differences between interest at a product rate and that at EIR.
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