Designing and implementing an accounting operational and compliance framework and system module for a new investment asset class is a comprehensive task that involves several key components and process steps.

 

The steps we followed:

 

1. Assessment of needs and planning

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• Understanding the Asset: Identify major characteristics of the new asset class and risks that would impact local accounting. This includes financing and cash stream up process specifics, financing documentation and accounting system functionalities etc.

• Regulatory requirements: Review local regulations that pertain to the new asset class, ensuring that the entity remains compliant with all legal obligations.

• Stakeholder engagement: Collaborate with key stakeholders, including finance teams, compliance officers and auditors, and investment managers, to gather requirements specific to the new asset class.

• Define objectives: Outline the objectives of the new accounting and administrative framework, including compliance, reporting accuracy, and operational efficiency.

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2. Developing a tailored framework

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• Accounting standards: Determine which accounting standards (e.g., IFRS, GAAP) are applicable to the new asset class and how they differ from existing assets in the portfolio. In our case, local GAAP applied.

• Recognition rules: Define when and how the new asset will be recognized in the financial statements.

• Policies and procedures: Document specific accounting policies and guidelines related to the new asset class, including recognition and reporting, and financial computations. Develop interim and period-end closing processes. This may include working cash flow management.

• Roles and Responsibilities: Define roles within the accounting team, ensuring clear ownership of processes and accountability.

• Reporting Framework: Develop a reporting framework that includes regular financial statements, analytic and transactional reports, and compliance documentation.

 

3. Setting up accounting systems

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• Integration with existing systems: Ensure that existing accounting software can accommodate the new asset class. This might involve upgrades or customization. We engaged with the security trading system developers to incorporate the reporting needs specific to the new asset class. This collaboration was crucial for ensuring that the system could handle the unique requirements effectively.

• Chart of Accounts: Create or modify the chart of accounts to include new line items and analytic codes related to the new asset class, ensuring clarity and consistency in reporting.

• Data management and governance: Implement robust data management practices to capture and analyse and maintain relevant data points for the new asset class.

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4. Setting up business processes

 

• System processes: Setup documentation for customized or previously not documented workflows.

• Manual (off-system) processes: For assets that may not (yet) be integrated into automated systems, establish manual processes for recording and tracking. Develop documentation to support off-system processes, ensuring traceability and accuracy. Given the absence of advanced technology leverage, we developed various Excel based solutions to streamline processes.

• Interim processes: Create interim mechanisms to monitor success and compliance until full integration is achieved.

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5. Compliance Processes

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• Audit trails: Establish audit trails for transactions related to the new asset class to facilitate internal and external audits. Our client did not have internal audit department.

• Risk management: Implement risk management practices tailored to the new asset, including monitoring for compliance with investment guidelines and regulatory requirements. Our client had to monitor tax compliance requirements, mainly relating to arm’s length price reporting.

• Training and awareness: Conduct training sessions for staff involved in accounting and compliance to familiarise them with the new asset class and related processes.

 

6. Ongoing monitoring and review

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• Regulatory updates: Stay informed about changes in regulations that may affect the accounting and compliance of the new asset class. Our client was supported by external advisors on regulatory changes.

• Process improvement: Continuously review and refine accounting and compliance processes based on feedback and evolving best practices. We developed Excel solutions to aggregate and standardise segmented data flows.