Investment accounting and reporting is software that keeps the daily record of what an investment portfolio holds and what it is worth, and produces the accounts and reports from that record. Its main users are insurance companies and large companies that invest their spare cash. It is usually sold as a service. The software company runs it in the cloud, and the customer logs in to use it.
Why does an insurer need it? An insurer collects premiums today and pays claims years later. In between, it invests the money, mostly in government and company bonds. In India, IRDAI, the insurance regulator, sets rules on what an insurer may invest in. A large insurer may hold thousands of bonds. They are kept at several custodian banks and managed by several fund managers. A custodian bank is a bank that holds investments safely on behalf of their owner.
Say an insurer in Pune holds a government bond worth ₹50 crore that pays 7.2% interest a year, in two half-yearly payments. The software records the bond on the day it is bought. Each day, it adds the interest that has built up but has not yet been paid. This is called accrued interest. On the payment date, ₹1.8 crore arrives at the custodian bank. The software checks that the custodian's records show the same ₹1.8 crore. This check is called reconciliation. The trades themselves arrive from post-trade processing and from the fund manager's investment management system.
Every month and every quarter, the software produces the reports. The insurer's finance team needs the figures for the company's own accounts. So the software sends them to financial close and reconciliation software, which closes the company's books. The same holdings must also be reported under several sets of rules: the regulator's rules, accounting standards such as Ind AS, and the tax rules. One record of holdings feeds all of these reports.
How does it differ from an investment management system? An investment management system helps a fund manager decide on trades and place them. Investment accounting starts after the trade. It records, values, checks and reports what the portfolio holds.