SAP Accounting for Financial Instruments, a banking application developed with input from more than 20 major financial institutions, enables more efficient collecting, reporting and auditing of financial information by centralizing financial data in a common database. This helps banks eliminate the widespread usage of time-consuming, manually compiled spreadsheets.

First customers are already live with the new banking application, including Banche Popolari Unite in Italy and German banks Bankgesellschaft Berlin (BGB), DZ BANK, HSH Nordbank, HypoVereinsbank (HVB), IKB Deutsche Industriebank, WestLB AG and Westdeutsche Immobilien Bank (WIB). Additional customers will follow, including Kommunalkredit (Austria), Entenial (France), National Bank of Greece and Interbanca (Italy).

IFRS - A New Playing Field in 2005

When European banks opened for business at the start of this year, sweeping legislative changes had taken effect, impacting their accounting practices and regulating their financial results calculations. Formerly referred to as International Accounting Standards (IAS), IFRS went into effect for publicly listed banks in the EU starting January 1, 2005, and is rapidly finding acceptance throughout the global financial sector. More than 90 countries around the world are moving to either require or accept IFRS, where regulatory authorities have initiated the convergence of their local Generally Accepted Accounting Principles (GAAP) with the new international standard.

A Milestone in the Road Map to Regulatory Compliance

Working closely with financial institutions such as DZ BANK, HSH Nordbank, Landesbank Rheinland-Pfalz (LRP) and WestLB, SAP developed SAP Accounting for Financial Instruments to meet banks' expressed needs for complying with the extensive IFRS demands.

In evaluating how to best enable its IFRS compliance, Westdeutsche ImmobilienBank (WIB) was very interested in having a central financial database to unify the necessary information for IFRS, Basel II and internal reporting - information that was stored throughout various databases for individual areas such as operative banking systems and portfolio evaluation. WIB stepped on board early with SAP's IFRS software development efforts as one of the first customers. The bank went live with SAP Accounting for Financial Instruments for IFRS compliance in January 2005.

"SAP has set a benchmark for IFRS solutions with the SAP Accounting for Financial Instruments application," said Michaela Dressler, IFRS project lead, Westdeutsche ImmobilienBank. "The SAP solution is the result of an enormous effort to create comprehensive software functionality built on the solid foundation of extensive specialist know-how from various banking institutions. We could find no other alternative on the market that could comprehensively cover IFRS requirements while at the same time creating new synergies for more effective core banking processes."

Comprehensive Toolset Covering IFRS Demands

One of the critical IFRS regulations addressed by the SAP solution is IAS 39, which establishes principles for recognizing, measuring and disclosing information about financial instruments - a bank's financial assets and liabilities such as stocks, bonds or loans. IAS 39 establishes a comparable measurement for financial assets by requiring banks to calculate the value of their assets and liabilities based more strongly on market valuation and to include additional assets such as futures and options in their consolidated reporting.

SAP Accounting for Financial Instruments includes a centralized financial database that creates a full audit trail; enables drilldowns from consolidated report data to single transactions, across business areas; and allows banks to compare disparate financial information reliably. This centralized database also helps banks meet the complicated hedge accounting requirements of IAS 39, which stipulate that financial data, usually coming from different systems and managed in different sub-ledgers, be comparable based on a common valuation process.

In addition, the software allows banks to valuate, post and report diverse financial assets on a single platform that helps ensure consistent master data, methods and market data. It provides flexible tools for generating reports from integrated financial data, producing balance sheets and generating profit and loss statements and notes. It also features an extensible architecture to support additional reporting needs such as the pending Basel II requirements.

Expanding Solution Set for Analytical Banking

SAP Accounting for Financial Instruments is part of SAP's expanding set of analytical applications designed to support financial analysis, profitability analysis and risk management in banks. Including applications such as SAP Basel II, this analytical banking set is based on a common infrastructure - SAP's integrated finance and risk architecture - which features the centralized financial database as well as industry-specific processes and methods. The open architecture enables banks to harmonize their entire analytics system landscape, integrating additional SAP, third-party or custom-designed analytical applications.

"From our extensive and ongoing relationships with leading international banks, we know they are not interested in another number-crunching tool," said Thomas Balgheim, senior vice president, Financial Services, SAP AG. "SAP Accounting for Financial Instruments enables banks to effectively comply with accounting and financial reporting requirements, while also gaining the detailed financial information they need to support their business decisions and derive long-term financial and operational benefits. Combined with our integrated finance and risk architecture, these solutions are providing banks with a step-by-step approach to transform their application landscape into a modern, flexible, services-oriented architecture."