London:
Finally,the International Accounting Standards Board (Board) on Tuesday has decided that the effective date of the Standard will be deferred to annual reporting periods beginning on or after January 1st,2023. The Board also decided to extend the exemption currently in place for some insurers regarding the application of IFRS 9 Financial Instruments to enable them to implement both IFRS 9 and IFRS 17 at the same time.
IFRS 17 provides consistent principles for all aspects of accounting for insurance contracts. It removes existing inconsistencies and enables investors, analysts and others to meaningfully compare companies, contracts and industries.
The board has completed its discussions on the amendments to IFRS 17 Insurance Contracts that were proposed for public consultation in June 2019 and expected to issue the amendments to IFRS 17 in the second quarter of 2020.
IFRS 17 is an International Financial Reporting Standard that was issued by the IASB in May 2017.The effective date for implementing the new accounting system was originally set at January 1st, 2021 before an amendment in 2019 saw the effective date move by one-year to the start of January 2022.
Now, in response to feedback on the amendments exposure draft, the IASB has voted in favour to defer the effective date of IFRS 17 (incorporating and amendments) to annual reporting periods beginning on or after January 1st, 2023.
“It recognises the practical difficulties for many insurers in implementing the significant changes brought about by IFRS 17. The extra year gives some insurers a chance to consider how to derive more business value from their extensive IFRS17 projects. For others, it will de-risk the delivery timetable, aid Alex Bertolotti, global IFRS 17 leader at PwC.
“The additional time will also be welcome as insurers consider how they can use IFRS 17 to tell a clearer and more understandable story about their company,” he said.
“We encourage companies to continue to press forward at current pace and use this additional time to strengthen their processes and procedures as well as allow for more testing, dry runs and contingencies. We also believe a shared effective implementation date for IFRS 17 and IFRS 9 will avoid temporary earnings mismatches that would otherwise exist and reduce implementation costs,'' said Ralph Ovsec, Senior Director at insurance and reinsurance broker Willis Towers Watson.
“The current global environment adds significant resource and time constraints to insurers’ operations, and this additional respite will reduce those near-term pressures on insurers,” said Ovsec.
The Board has in previous meetings confirmed that it will proceed with the proposals outlined in the June 2019 consultation document albeit with some minor modifications in response to feedback received. The Board also added some additional amendments, again in response to feedback on those proposals.
Timely implementation of IFRS 17 is vital to improve the quality and comparability of accounting for insurance contracts.
However, the Board’s decision to defer the effective date by two years from the original date to 2023 will enable insurers around the world to implement the new Standard at the same time, which the Board considers to be beneficial for investors, insurers and other stakeholders, said IASB.
IFRS 17 is designed to improve on its predecessor IFRS 4 in two major ways:
It makes sure that more transparent, more useful and ultimately, more precise information is provided by the insurers on the value and profitability of their operations.It creates a framework that applies the same rules across different nations, different insurance contracts1 and different industries.
Because IFRS 4 allowed different insurance contracts to be measured across different jurisdictions and by different firms in very different manners and IFRS 17 creates much needed unified framework, or at least takes a large step towards its unification, the path to IFRS 17 compliancy is going to differ from firm to firm based on what sort of insurance contracts they issue and especially how they used to measure them until now.