ACCOUNTING standards setter the IASB has issued amendments to the rules governing insurers to cover gaps between the implementation of IFRS 9 and the existing insurance contracts standard IFRS 4.
The IASB has proposed the changes to provide temporary reliefs for insurers in order to address the consequences of the different effective dates of the two standards.
Both IFRS 9 (which was issued in July 2014 and has an effective date of 1 January 2018) and the new insurance contracts standard (which will replace IFRS 4 and have a later effective date) are relevant to companies that issue insurance contracts.
Some companies expressed concerns about the need to implement two significant changes in accounting on different dates and highlighted that potential increased accounting volatility could arise in profit or loss if the new requirements for financial instruments were applied before the new requirements for insurance contracts.
Options for IFRS 4 put forward by the IASB include an option for a company that issues insurance contracts to remove from profit or loss the incremental volatility in profit or loss caused by changes in the measurement of financial assets upon application of IFRS 9.
Additionally, there will be an optional temporary exemption from applying IFRS 9 that would be available to companies whose predominant activity is to issue insurance contracts. Such a deferral would be available until the new standard comes into effect (but it could not be used after 1 January 2021).
Hans Hoogervorst, IASB chairman, commented: “The IASB is in the final stages of developing the new insurance contracts standard. Until it is in place, we believe the proposed changes balance meeting the needs of insurers with meeting the needs of users of financial statements.”
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