IASB proposes reform of insurance accounting

The International Accounting Standards Board has put out proposals for
changes to insurance accounting, in order to make the current “impenetrable”
financial information more accessible to users of accounts.

The exposure draft for the IFRS standard on Insurance Contracts follows the
initial publishing of interim standard IFRS 4 in 2004, and a discussion paper on
potential improvements in 2007.

The IASB said it would undertake further outreach during the comment period –
which ends on 30 November – including a second round of field tests.

“A fundamental review of insurance accounting was long overdue, with current
practice resulting in financial information that is impenetrable to all but the
most expert of users,” said IASB chairman Sir David Tweedie. “The proposed
standard better reflects the economics of insurance contracts, and would result
in more relevant, understandable and comparable information being available to

Commenting on the proposals, David Law, global insurance leader at PwC, said:
“The proposals released today represents a fundamental change to the way
insurers’ accounting will be conducted in the future, resulting in one of the
biggest challenges to hit the industry in recent years. The impact will be felt
across the sector and will require insurers to conduct a complete overhaul of
their systems and performance reporting. Due to the changes facing insurers,
particularly in Europe as they implement Solvency II, these proposals will hit
industry resources hard, at a time when they are already scarce.

“Nevertheless, insurers should welcome the exposure draft as a significant
step forward to achieving a global comprehensive and comparable accounting
model. They will welcome the opportunity for an open debate, in which they all
have a vested interest in making their views heard.”

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Fiona Westwood of Smith and Williamson.