The International Accounting Standards Board (the Board) has today issued IFRS 17 Insurance Contracts. This first truly international IFRS® Standard for insurance contracts will help investors and others better understand insurers’ risk exposure, profitability and financial position.
IFRS 17 replaces IFRS 4, which was brought in as an interim Standard in 2004. IFRS 4 has given companies dispensation to carry on accounting for insurance contracts using national accounting standards, resulting in a multitude of different approaches. As a consequence, it is difficult for investors to compare and contrast the financial performance of otherwise similar companies.
The Financial Stability Board noted in September 2015 the importance of the Board completing the project to replace IFRS 4 with a new Standard .
IFRS 17 solves the comparison problems created by IFRS 4 by requiring all insurance contracts to be accounted for in a consistent manner, benefiting both investors and insurance companies. Insurance obligations will be accounted for using current values—instead of historical cost. The information will be updated regularly, providing more useful information to users of financial statements.
Hans Hoogervorst, IASB Chairman, said:
The insurance industry plays a vital role in the global economy; high-quality information to market participants on how insurers perform financially is therefore extremely important. IFRS 17 replaces the current myriad of accounting approaches with a single approach that will provide investors and others with comparable and updated information.
Due to the range of accounting methods in use today, some countries will see more significant changes than others with the introduction of the new Standard.
IFRS 17 has an effective date of 1 January 2021 but companies can apply it earlier.
1) The document contains proposed amendments to IAS 12 Income Taxes, IAS 23 Borrowing Costs and IAS 28 Investments in Associates and Joint Ventures.
The proposed amendments to IAS 12 clarify that an entity should account for all income tax consequences of dividends in the same way, regardless of how the tax arises.
The Board also proposes to amend IAS 23 to clarify which borrowing costs are eligible for capitalisation as part of the cost of an asset in particular circumstances.
The proposed amendments to IAS 28 clarify that an entity should apply IFRS 9 Financial Instruments to long-term interests in an associate or joint venture to which it does not apply the equity method. Further information about the Exposure Draft