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From an amortization perspective, ECL uses the net present value (NPV) approach for calculating the yield. That yield should be “locked-in” and not change except for changes in initial cash flows or changes in initial cash flows and coupon rate. The following accretion rule setup is necessary for Eagle to properly account for fixed income posistions that follow the ECL method.
To create an amortization & accretion rule for use with ECL:
- Do one of the following:
- In Portfolio Data Center, in the left navigation pane, click Portfolio Desk > Accounting Portfolio Rules > Amortization & Accretion > Create Amortization & Accretion Rules.
- In Accounting Center, in the left navigation pane, click Setup > Portfolio Rules > Amortization & Accretion > Create Amortization & Accretion Rules.
You see the Create Amortization & Accretion Rules panel. - Under Rule Information and Asset/Security Specific, identify the accounting rule and security specific information.
For more information, see Amortization & Accretion Rules Panel Options. - Under Amortization/Accretion, do the following:
- Set Yield Type to Net Present Value.
- Set Adjustment Type to ECL.
- Set Amortization Methodology to Prospective.
- Set the Amortization/Accretion Method to the appropriate value.
- Set ECL Prospective Amortization Yield Recalculation Frequency to ICF (Initial Third Party Cash Flow Released) or ICF/CPN (Initial Third Party Cash Flow/Variable Rate). - Complete the remaining options on the Create Amortization & Accretion Rules panel.
- Click Submit.