The complexity and uncertainty of today’s financial markets have put tremendous pressure on the teams responsible for managing investment portfolios and the functions associated with them. As investment balances grow, and increase in importance, it’s imperative that the relevant stakeholders within any organization have access to automated and consolidated investment information that is actionable and timely in order to react to market moves, senior management questions, accounting rules, auditor inquiries, and make intelligence investment decisions.
Clearwater Analytics has heard first-hand from our clients about the pressure they are under, and the challenges associated with accounting for and reporting on their investment portfolios. If you are like most finance and accounting professionals, you likely feel pressure with the investment accounting and reporting process, especially at month-, quarter- and year-end. There are different macro-level dynamics that contribute to this pressure, including:
- Changes in accounting rules
- Market volatility
- Shifts in credit ratings
- Unpredictable price moves
- Responding to auditor questions
We all know these dynamics in the market can significantly change the investment reporting process and it is important to adapt accordingly. Whether an investment accounting and analytics solution is built in-house, purchased, or outsourced, implementing a best practice model is essential to reacting to market changes. We have developed the following best practices for investment accounting and reporting based on common trends and challenges that we frequently see with our clients.
Be Consolidated and Consistent
There are three foolproof ways to ensure that your investment accounting and reporting processes are consolidated and consistent.
A CONSOLIDATED VIEW OF ASSETS UNDER A SINGLE LOGIN
This is often easier said than done, as many companies have a single custodial bank but may not have global assets consolidated under that custodian. Without a consolidated view of assets, accounting and finance professionals cannot ensure compliance with the investment policy and consistency of calculation methodologies. It is also extremely difficult to make informed investment decisions or fully report to the Board. With today’s economic environment prompting boards and senior management to be more risk averse, finance and professionals responsible for investments must be able to answer questions about holdings and exposures as they arise, with 100% confidence in their data.
STANDARDIZED PRICING, ACCOUNTING, AND CALCULATION METHODOLOGIES
In a perfect world pricing sources would never vary, accounting methodologies used by software platforms would always be consistent, and data vendors would only report identical information. In reality, this perfect world doesn’t exist. As such, accounting and finance professionals must ensure that, regardless of custody location or asset manager, standard pricing, accounting and calculation methodologies are applied across the entire portfolio. Companies that allow disparate data and methodologies among their investments run the risk of getting different pricing results for the same security. Additionally, auditors will not appreciate inconsistent accounting and pricing methodologies that vary depending on the accounts. Also, no one wants to explain to the Board why the bottom line on one set of figures is different from that of another. Ensuring that standardized pricing, accounting and calculation methodologies are applied provides consistency in investment decision making, prevents potential headaches and inconsistency across investment accounting, reporting and analytics.
ENSURE NUMBERS TIE OUT ACROSS ACCOUNTING, COMPLIANCE, PERFORMANCE, AND RISK REPORTING
There is risk in running separate systems for different investment functions. Using separate systems involves gathering independent information, which can result in securities having different master file characteristics. For example, if treasury uses one set of data to run its investment activities, and accounting uses a different set to produce financial reports, the two likely will not match since the systems are separate data “silos.” Disparate systems also result in time wasted in manually reconciling data across the various investment functions. A fully integrated, single system accessing the same data will ensure numbers tie out across accounting, compliance, performance and risk reporting.
Following these three best practices steps to implementing a consolidated and consistent investment accounting and reporting process will provide your organization with the ability to make informed investment decisions based on accurate and complete investment data. Further, key decision makers will be able to react quickly to changing market conditions and be able to answer critical questions when issues arise.