The IASB at its upcoming meeting plans to consider whether to make changes to the board’s much-watched insurance accounting standard, including whether to delay the 2021 effective date. The agenda papers for the meeting suggest that any changes the board agrees to will be limited.
Facing criticism that its insurance standard is too complex to apply by its scheduled 2021 effective date, the IASB at its October 24-25, 2018, meeting plans to debate the merits of a delay.
The board is also scheduled to address several questions that have arisen since it published IFRS 17, Insurance Contracts, in May 2017, and consider whether to change the standard’s substance. The board’s memos, released in advance of the meeting, suggest changes will be limited.
“The extensive due process undertaken during the development of the standard and the positive feedback from users of financial statements for the outcomes of the standard suggest to the staff that the board should set a high hurdle for changes to the standard”, a staff memo reads.
In addition, the research staff asks the IASB to limit potential amendments to those that do not result in a “significant loss of useful information” relative to what would be provided by IFRS 17. The staff says any changes — including a deferral of the effective date — should be limited to those to do not “unduly disrupt” implementation efforts already underway.
To the trade group Insurance Europe, however, more time is necessary, not just to implement the standard but also to allow for the IASB to make changes to what it considers problematic areas of the new guidance.
“Important issues still need to be resolved in order to ensure the quality and operational practicability of the new standard”, said Olav Jones, the group’s deputy director general said in a statement. “A delay of two years in the effective date of the standard is needed, both to allow for the necessary improvements to the standard and to allow adequate time for companies to meet its significant implementation challenges.”
The IASB does not plan to take action at the October 24 meeting. A decision about a delay in the effective date or a change to the standard would be considered at a future meeting, according to the meeting memos.
The international board has felt significant resistance about the breadth of the changes ushered in by IFRS 17, which the IASB published after more almost two decades of debate. The standard represents a fundamental change to how insurers report their finances, and it requires insurers to measure their obligations using updated estimates and assumptions about risk and morbidity. IFRS 4, Insurance Contracts, which is being replaced by IFRS 17, is more flexible and permits insurers to set their assumptions about risk and claims when policies are underwritten. The change is expected to result in more period-to-period earnings swings. Insurers also predict high costs to comply with the standard — setting up new systems, hiring actuaries and accountants. In July, the European Insurance CFO Forum told European Financial Reporting Advisory Group (EFRAG) that European insurers estimated expect to spend 50 million euros to 320 million euros to follow IFRS 17.
The IASB has acknowledged that the accounting standard will require major changes for insurers, which is why it agreed to make the effective date three-and-a-half years after its publication. The board also has made the case that the standard will be a significant improvement to the much more limited reporting that is prevalent with IFRS 4.
IFRS 17 “will provide more useful financial information for users of financial statements than they have today” by addressing “many inadequacies” in existing insurance accounting practices by “introducing current, transparent and consistent financial information about insurance contracts”, a memo reads.