T.F.M. Report on Ernst & Yung

7/31/2019 T.F.M. Report on Ernst & Yung

http://slidepdf.com/reader/full/tfm-report-on-ernst-yung 1/24

Designed By: S. Taha A. Zaidi

Student ID: FA09-MB-0166

Submitted to: Sir Irfan Ahmed

Term Report On

Performance-driven solutions



ummaryganization and governancerformance assessments:wards best practiceancial risk managementsh and liquidity managementrporate fundingancial instruments valuation

d accountingeasury technologysurance and controlntacts

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tegyancentrolizationernance

he evolving treasury functionmancesments

Treasurytechnology

Planningasuryagementtion &ntingcial riskgementrate Cash - anding liquiditymanagement

hallenging contextdemands on corporate treasury departments are subject to

constant change with, for instance, an increasing requirement of shareholders for companies to demonstrate how financialresources and financial risks are managed. These requirements for

eased transparency and control have led to a global trendard centralization of treasury activities. In addition, treasurersd to cope with a growing complexity of financial instruments,

more volatile financial markets and the introduction of newlations and accounting practices. For treasury, this means thatneed to update continuously your know-how, to ensurection of costs, minimize volatility, bring value to the companyensure short and expansive lines of communication.

icsprimary Treasury services cover the following areas:

reasury organization & governance

reasury performance assessments

nancial risk management, (interest, FX, credit and commodity

s)

h and liquidity management including cash forecastingporate funding and capital managementsury technology, including Treasury Management Systemselection and implementationation and accounting for financial instruments (IFRS and GAAP)t, Quality assurance & compliance

r goals — our missionwill help you to define clearly the responsibilities of treasuryto engage further in supporting the business. We have theired know-how and expertise available for all the important

cs of treasury (for example, cash and liquidity management,ncial risk management, accounting, system utilization). Intion, we will confirm whether the internal control environment

our treasury is in accordance with statutory requirements andket practices.

e than ever, it is important to adopt an integrated holisticroach instead of pursuing temporary solutions for individuales.

r benefits

ntegrated service offering

owerful, customized approaches

apid, sustainable knowledge transfer

olid process embedment

olistic perspective

rofit from Ernst & Young’s global Treasury network and

tinational team

ch service offers you the competitive

antage?r offer

elf Assessment using our proven analytical methodology

nalysis of potential improvements, based on your current

growing demands on the treasury function are driven to a

ualitysurance

Implementation



e extent by the current market situation. They are associateda heightened awareness of management for operational and

ncial risks, focused on the following themes:ationvidual approaches to address any weaknesses identifiedk check of accounting policies and hedge relationships

mprovement of cash-forecasting quality and methodologies for

e an appointment and talk to us. We are happy to inform inil about how we can help you drive your treasury forward.dity management and financial planningagement of derivatives, market price and counterparty risks

ounting and valuation of all treasury transactionsarallel, there is continual pressure to improve the efficiency of,control over, treasury.t & Young provides you with a portfolio of services that coverfull scope of a treasury function. We have a knowledgeable

m, with the right combination of treasury skills and experienceupport your treasury through all types of challenges.& Young Treasury management



egyncerolzationrnance

rganization and governancemancements

Treasurytechnology

PlanningValuation &accountingFinancial risk

ementate Cash - andg liquidity

management

oosing the right organization

the increasing importance of treasury,panies must choose a robust and

dynamic organizational structure. Inparticular, a well thought-out strategic,forward-looking approach is essential. This

ns with choosing the right operatingel. In order to do this, the scope of

vities that are covered by the treasuryartment and the degree of ralization must be determined. Doessury execute only the most necessaryvities such as liquidity management oreasury is determined a “core”nizational process – does it cover the

range of services? This must be takenaccount when designing the optimal

archical structure of the central and/or treasury functions.

accompany you along the wholeess: from definition of objectives toementing a new or revised organizatione governance structure and underlyingesses.ent state analysis

nalyzing the current state compared

h ”leading practices” and establishedntrol requirements

ssessing the systems and

thodologies, focused on identificationpotential improvementsre state development

efining the target organization given

objectives, identifying leadingctices that are both fit for purpose

d focused on value optimization

efining, updating or standardizing

icies, processes and procedures for:anking network (banking selection

nd rationalization)ash management (pooling/ netting)hort- and medium-term financing.g., factoring and securitization)inancial risk management (strategyptimization)reasury accountingementation support

roject planning and management

jectives, resources, milestones)

dentifying and implementing “quick

ns”

ssist with planning and implementation

a rollout of the new global structure

dditional organizational knowledge

ough workshops covering operations,counting, finance, legal, tax servicesd information systems

nterim staffing of operational or control

ctions (when allowed)

r benefits

ealignment of the treasury to meet

organization andnsformationent and future economic andlatory requirementsization of potential synergies andiencies by optimizing treasury

ualityitysurance

Treasurymanagement

Implementation



essesto changing circumstances, e.g,sactions such as mergers anduisitions, carve outs, spin offs and asof reorganization projects such asrprise resource planning (ERP)ementation and centralization of sury functionality, a reformulation of organizational structure, processes andncial risk management is needed.

efining and adjustment of (key)

r servicesg a gap analysis of your currentsury structures compared with theirements according to your strategicctives, we make recommendations for

osing the right organization andmizing the treasury function. This leadsnter alia, improved communication andrting processes and identifies processication and redundancies.agement indicatorscting and implementing TMS(s)ning roles and responsibilities, jobcriptions and provide assistanceards recruitment and/or secondmentement& Young Treasury management




erformance assessments:towards best practicePlanningTreasury

logy

surygement

mancementson &tingal risk


management

Current state analysisOur performance assessment can be the

step towards developing a risk-andt-oriented, comprehensive view of

r treasury activities. Based on oursury experience and peer comparisone market, we identify potential pointsmprovement and further developmentntial.thorough investigation of structuresprocesses and their comparison withegal framework and market practicesthe foundation of our treasury

sory’s holistic approach.r servicest & Young has developed a specific

mework for assessing functionalormance of a treasury department,h is based on our global experience withsury organizations, regular treasuryects and client surveys. In addition,rnal benchmarks and guidelines aren into account, for example, from local

ociations of Corporate Treasury, IFRS7the local Corporate Governance Code.many facets of corporate treasuryire a practical and pragmatic

rpretation of relevant regulations, whichd to be considered in the broader context

e complexity and risks of the company.ng into account external market trends,ell as our extensive industry

erience, we have developed a compactorate treasury checklist that allows aprehensive benchmarking againsting practices and provides a quick

ght into potential improvements.ddition, the ”maturity” of the treasurytion is assessed compared with well-blished, ”leading” treasurynizations, while taking into account the-specific characteristics.

easury function maturityfactors

cies andeduresernancecs policies and procedures notnted.

elopingvel policy statements setting out centraly activities. Limited documentede on local treasury activities andete procedure documentation.

blishedcumented group treasury policy andres. Limited policies and procedures

sury activities in local business units.

ding classhensive policy document for group

y and the business units.er or group FD responsible for allof treasury. No compliance monitoring

nal audits.reporting to the board on treasurys. Internal audits not performed by

y experts. Minimal compliance

g.y compliance regularly monitored andd to the board and/or the relevanty/finance committees. Regular internalsing external treasury sprecialists.y activities monitored by and treasuryy approved by Board or boardmittee. Regular internal audits byy experts with treasury self ments.

cturealised treasury structure with localses responsible for managing their owny activities. Little/no interactionn Group Treasury and Groupies.y managed funding with businesses

Implementation

ualityitysurance



ible for managing local treasurys. Some interaction between Groupy and Group companies.sed treasury with clear guidelinesng any local treasury operations.nication between group treasury andompanies on an informal basis.sed treasury with all treasury activity

ed by group treasury (as far as). Regular dialogue between group

y and business units.

ple and skillsy activities are performed by personnele or not treasury experience. Treasuryperformed by finance staff on partsis.ed treasurer with inexperiencedt(s) and support staff.nced and established team withiate professional qualifications/d by experience in key positions. Gooddge of all aspects of treasury and of they’s business.nced and qualified professionals in allitions within treasury. Good knowledgeury activities and experience of

in a multinational treasury function.

& Young Treasury management

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main themes covered in a Treasury Assessment are:

r benefits

reasury organization, strategy and systems

ntegration into the company’s strategy, rules and responsibilities

anagement of financial risks (e.g., interest rate, currency and

modity risks)idity and cash managementrnal controlormance measurementortinged on the analysis, you receive an assessment of your treasurynization compared with leading practices, with individualmmendations for potential further improvements andificant risks.assessment enables you to determine priorities and — if icable — define an action plan, for implementationpany XYZ: Treasury management — Process Efficiency — Maturity Assessment Dashboardhted scoresrity profile — Weightedsionsonal strategy& policy

&ationogy & dataance

ementmaturity

maturity%)

nt

g

ce

%

— Equal dimensionsrity profile — Raw — Equal dimensionssionsonal strategy& policy


ementmaturity

maturity%)

nt

gce

%

scores — Equal questionsrity profile — Raw — Equal questionssionsonal strategy& policy


ementmaturity

maturity%)

nt



gce

%





nancial risk managementmancements

Treasurytechnology

PlanningTreasury

gementon &tingal riskementate Cash - andg liquidity

management

ancial risk managementng market volatility, constant evolution

of the international accounting standardsand increasing importance of financial

rting prompt companies to improvelarly their financial risk knowledge and

ptimize its management. In thisronment identification of risk driversexposures, definition of riskagement policy and implementation of

ropriate management tools,munication lines and reporting are themeans to enable effective financial riskagement.

r services

ed on our extensive experience, weide advice and support for all elements

nancial risk management, for example:

dentifying the main sources of financial

asury and financial derivativesrder to control financial risks, mostsury departments, inter alia, usencial derivatives. The hedgingtegies need to be aligned with theall objectives of the company, while

uring that valuation methods forvatives do not lead to unwantedtility of profits. In addition, a consistentaration of functions in risk managementappropriate monitoring systems are

ded.exposure and measuring thepany’s “natural” hedgingctivenesseveloping a strategy for financial riskagement within the group’s financial

ply chainelopment and validation of models to

ntify and monitor financial risks,uding VaR, EaR, Gap and scenarioysisgration of more complex financialucts into your information systemsementing appropriate (hedge)

ounting to reflect adequately thenomic) exposures, including hedgectiveness testingelop appropriate reporting to enablective monitoring and steering of ncial risks by managementfinancial crisis has demonstrated thathods that seem to work in “normalumstances” may fail in the case of or calamities. For example, a significant

raction between market prices,teral demand, liquidity and creditity occurred. Therefore, the creation of verall corporate financial risk

mework is a central aspect of oursury Advisory approach.

r benefitswill assist in further developing andngthening the understanding of thencial risk management strategies to

ualityitysurance

Implementation



you best achieve your business goals, economically and in terms of financialrting.includes an adequate organizational

cture and infrastructure (policies,rols, processes, models, etc.) as well

he development of methods andesses for quantifying, assessing anditoring financial risks.

ether we will develop scenarios andss-testing methods, includingrgency plans that are tailored to yourpany’s risk profile and classification soyou are fully prepared to handle crisis

ations.

or riskskey financial risks that treasury needsentify, quantify, manage and monitoriquidity, FX, interest rate and

nterparty risks. An increasing numberompanies are also active in commoditynergy risk management.tyXYZ risk

ement framework

oseent state of XYZmanagementork

nement frameworks results

erendations to

ent enhancedmanagement

orkin

yze and comment on • Understand and validate • Analyze impact of FX risk • Formulate

implementation

ans sustainablement plan

erstand XYZ business • Assess and validate the

e, economicnd transactional

t FR risk exposureof XYZ FX

current XYZ FXnagement policyging frameworkbusiness

g schedule and. FX risk forecaste and cycle andnt on potentialment

state of XYZ FXnagementorkcriteria for itson andand XYZ desiredtateaccountings and impact of managementork on XYZ’sor both statutorynagementgBenchmarktors (MNC) inf FX riskement

FX management

yze impact on:

es consideringwithlders’ value

XYZ’s FX riske taking intoXYZ’s business

csDesign/Enhance XYZ’sFX risk managementpolicy and hedging

orkteendations of

al benefits of not using hedge

ing

C 6.0 andCMntrolork

elop the approach

uirements for thed improvementsd in the new FXnagement policyEnhance the FX

Key Tasks

Activities



nagement manuale the newlyd FX risk

ement frameworkimpact and

n of FX riskement frameworkutory accounting,

ement reportingX controlorkon FX riskment frameworkentation

irm the newly

d FX riskement frameworkting as intendedture lessons(KPIs,

anceement reporting)test of design toperformancethe newlyd FX risk

ement frameworkent an ongoingng programfurthernities to extendefits across theup


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ash and liquidity managementmancements

Treasurytechnology

PlanningTreasury

gementon &tingal riskementate Cash - andng liquiditymanagement

% of large companiesve not implemented

homogenized proceduresorecast their cash

ws.% of companies do notalyze the variancesween real cash flows

d forecaststematically, in order toke the necessaryprovements.

e: Ernst & Young European Treasuryey

h remains Kingability of companies to managedity and loans is scrutinized with evere attention by financial markets andeholders. During the financial crisis,capacity of a firm to generate liquidityre-emerged as the priority. Treasurys a central role in monitoring liquidity

s, setting up cash-flow forecasting andning and reporting on liquidity buffers,vant financial covenants and other-indicators’ for liquidity risk.ss tests are becoming increasinglyortant to monitor potential liquidity

s. These should reflect both companycific and market-wide scenarios and areed on historical market trends, whilemapping hypothetical - but possible -re business scenarios. Based on theses, liquidity constraints can be identifiede taken into account in your planningrisk control.

evelop or review methodologies for

-flow forecasting and varianceysis proceduresew or select systems and technology

d in the cash forecasting processmize the cash and liquidityagement processes and structures in

nment with global tax strategiesess and reorganize cash managementvities (for instance, methodology toement shared service centers)elop a framework for structureditoring of key indicators for l iquidity

ance cooperation from localagement

r benefitsare able to guide you through themization of the financial resources of r company (cash management anding) and detect the best path to follow

nsure that cash is effectively managed.will assist you in assessing cashcasting reliability and process adequacyell as executing or designing an

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Implementation



quate cash forecasting model.ddition, we have the right knowledge tost you in securing your paymentsns, more effectively leveraging onle Euro Payments Area (SEPA) andr changes in the payments landscape.

r serviceshelp you to focus and optimize thehodologies for cash and liquidityagement and monitoring liquidity risks.

will assist you to:

efine a liquidity risk management

tegy, policy and proceduresew your company’s local, regional,global cash collection, disbursementbank account structureelop cash pooling solutions, ranging

m architecture and processes to theest for proposal (RFP) and banktlist& Young Treasury management




orporate fundingmancements

Treasurytechnology

PlanningTreasury

gementon &tingal riskementate Cash - andng liquiditymanagement

ding strategyday’s financial context with recurrent

liquidity tensions and increases in fundingcosts, the control of liquidity risks is of

tegic importance to companies. Accesssubstantial and diverse ”pool” of

ncing is a security interest, providingpanies with the flexibility to adjust theirncial strategy. Regulatory, legal, taxaccounting constraints complicate bothassessment and the implementation of ncing solutions.is environment, the key factors toess in the financing function of sury are:

ine the financing strategydentification of the medium and long

plementation support

he definition of an optimal funding

tegy, to optimize financing costs

e at the same time minimizingdity risksset up of appropriate in-houseking structures in a complexlatory and tax environment

ctive bank and investor relationshipagementctive management of the financialumentation supported byagement and control

m financing needselop a methodology for forecastingmonitoring financing needs andncial covenantstical examination of the borrowerits group in terms of banking loans

or intra-group and concerning therrent and exceptional guaranteested to third partiestification of the financing structuresrsity possibilities. For example, bond/issues, money market, open market

yndicated banking credit/loan,ritization, project financing, sale/e back and factoring

ssist with implementing the necessary

ctures and teams to manage thencing needsup an in-house bank, including asfer pricing policy for financialruments and guaranteeside tax constraint managemente preserving an acceptableinistrative management level (e.g.,holding tax, interests’ deduction,

mp duty and VAT)

r benefits

ppropriate structures, procedures and

ualityitysurance

Implementation



ems to determine and manage thencing strategy of the companyancing strategy which is tailored tot the organizational, legal,latory, fiscal, contractual and

ounting constraintsport in reaching optimal financings and appropriate diversification of ing sources

gotiate financing

mplement a ”call for tenders” / RFP

r servicesservices cover the full range of ncing activities, from defining thetegy to support in negotiating andementing a financing arrangement.edure, including the assistance in

paring term sheets to supportotiations with banksmination and negotiation, with the

stance of legal advisors, of thencing arrangementsond opinion on offered financingngements, including pricing of bedded) derivatives and keyenant implicationsysis of the implied credit risk of thepany, based on the credit spread

uded in the financing arrangementysis and advisory on tax and/or

ounting operations treatments& Young Treasury management

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nancial instrumentsvaluation and accountingPlanningTreasury

logy

surygement

mancementson &tingal risk


management

The solid base — or did you feel itshaking, too?

uationable information is the basis of yoursions. The valuation of your financialruments is, inter alia, the foundation forsuring and managing risks and takingtegic decisions. If this foundation is notle, the whole “building” is in danger.to the volatility in the financial

kets, the assessment and valuation of ncial instruments has become moreplex. Counterparty and liquidity riskse to be quantifiable components of yourassessments and valuations. the increasing use of derivative

ruments, it is important to keep theompanying, sometimes very complex,ounting rules in mind to ensure that theounting results are in line with thenomic rationale of your hedgingtegy.

aluation of complex financial

ruments, including embeddedvatives and personnel optionseling and valuation of complexvativesntification of credit risks/spreads andacts on valuationation and hedging in illiquid markets

ounting for commodities andrgy derivativesal power plants and modeling of tricity spot prices (Hourly Price

ward Curve)ication and interpretation of then use exemption”stry-specific features (energy and

ties sector)

ge accounting for commodityvatives, including emission rights

aluation of energy derivatives, such as

ounting for financialruments

assist you in applying the (hedge)ounting provisions of IAS 39 or your GAAP, in particular:

r benefits

reparation or review of your accounting

ualityitysurance

Implementation



cy compared with leading practicesgn and optimization of hedge

ounting proceduressurement of hedge effectivenessport in applying the de-recognitionirements so that a reliable

ounting of asset backed securities,sactions, factoring, etc. is achievedews of large portfolioside accounting advice for theance of mezzanine capital, such asvertible bonds, hybrid bondswledge transfer and training to thesurers and relevant operating units

xperience in financial instruments and

ations for modeling and quantifying risksvaluing derivatives

ward-looking statements by use of ous solid valuation methods

r servicesErnst & Young, valuation andounting are essential corepetencies. Our goal is to translate thiswledge to add value to our clients. Ourport services can be divided here asws:

lly, we support you in the application of osures and risk assessment-related

rmation according to IFRS7.& Young Treasury management




reasury technologymancements

Treasurytechnology

PlanningTreasury


management

hnology: the core of treasuryhas a central role in the control

environment of treasury, as it providesfunctionality for front, middle and back

e activities and controls, with a trendard ”straight-through-processing”. Intion, the TMS provides the basis forcal information such as forecasting,ation and reporting. It is thereforential to ensure that the system alignsthe company’s requirements and is

quately configured and implemented.

pport and guidance in theplementationnsure that IT systems quickly and

mlessly fit into the business of yoursury, we will guide you in theementation through:

ddition, we provide quality assuranceugh all parts of the implementationect.

r benefits

ptimal alignment of treasury

verall program and/or project

he same time, the range of offers in theware industry is becoming more ande complex due to significant evolutionschnologies and approaches. In the

ent economic environmentacterized by the concentration of dors, IT solutions tend to widen theirpe of functionalities, covering needsm market activities to cash management

ell as banking communication.agementduct design workshops and preparegn documents (blueprints)ne and configure static dataotype instruments and unit testne reporting requirementsoncile static dataelop and perform testing programsscriptsuser training

nology to your requirementsand efficient integration of systemsthe processnsive TMS knowledge and provenhodologies for system selections andementationspendence in choosing a systemiderainable knowledge transfer

asting systemanagement system

ualityitysurance

Implementation



nting systemting system

ury Management Systemystems

managementty managementg platformsrate financest rate riskkriskodity

ury control & reportingury accountingofficemationems

r servicescting a solution that fits your needsether with you we identify your treasury

nization’s current and future businessirements. This analysis should not onlys on functional requirements but alsoechnical and vendor-related aspects.ed on this analysis and our extensivewledge of the TMS market we provide:t data systems

0

dvice on vendors to be considered in a

ctured selection processport in development of a RFP, basedxisting ‘proven’ templatesagement of the complete RFPess, including vendor communicationce on the vendor responsesitation of vendors demos, ”Proof-of-

cept” and/or reference visitsstance with the preparation of the/benefit analysis and business plant startlanningtegice

• Request for InformationReview:

• Motivated long list• Determine

ctionria

w up• Motivatedrequest for

Send, receive and assessshort listinformation

RFI

ke long list• Test agendaDraw up

test agenda‘s

12l report withmmendationsmentation /ationon

stems

edge basese system integration& Young Treasury management

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ssurance and controlmancements

Treasurytechnology

PlanningTreasury


management

ective controleral recent events remind us of the

importance for a company and itsshareholders to have an effective control

ronment for its treasury activities.international accounting standardsS and FAS) and the obligation forcutives to report the internal control

mework (e.g., the Financial Securityeement Law and the Sarbanes-Oxleyhave created an additional level of pliance.a technical and ‘high risk’ function, suchreasury management, specializedstance is often necessary to alert the

manager, the finance department orexecutive management about the mainlenges and to comfort their opinionsut the quality of the organization andnternal control framework related to, financing and risk management

vities. It is often necessary to reinforcenternal teams of the company byilizing competences and methodology

cifically developed for treasuryagement control.

y questions

re the objectives for treasury and

r servicesncial risk management clearlyned?all financial risks of the grouptified and correctly measured?easury management meeting itsctives and does it respect the limitsguidelines assigned to it?e organizational set up satisfying and

ts procedures correctly documentedimplemented?the resources of the treasuryagement department sufficientlyerous, competent and independent?e reporting on treasury transactionspositions relevant, exhaustive andpendently done?the methods used and the financial,l and fiscal risks related to derivativeruments well understood, measuredcontrolled?offer to share control and managementems and methodologies, taking into

ount the requirements for:

egislative/regulatory compliancefficiency

fficacy

ccountability

his end, we perform a full review bycking and analyzing the current state,wed by recommendations formization with regard to the statutoryirements based on our experience of

ualityitysurance

Implementation



ing practice.services include support to the existingrnal audit units in the planning,paration, performance and reporting,ng into account current and futureds. The results are recommendationshe development of an effectivetinuous) monitoring controlronment, support for theementation of programs (such asd prevention or SOX) and evaluation of mplemented controls and efficiency.

r benefits

ssurances and advice focused on

mizing operational risks andtifying potential operationalrovementspliance with relevant legislation

ve use of your control framework toease efficiency and effectiveness of esses& Young Treasury management

T.F.M. Report on Ernst & Yung

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Transcript of T.F.M. Report on Ernst & Yung