IASB Replaces IFRS 4 with the Issuance of a New Standard on Insurance Accounting
The International Accounting Standards Board (IASB) has issued a new standard that will deal with insurance contracts. IFRS 17 (Insurance contracts) will replace the interim standard IFRS 4 that was implemented back in 2004 basically with the purpose to limit changes with respect to the accounting for insurance contracts and arrangements until the IASB issues a comprehensive standard on the same subject matter.
A new standard on insurance contracts was needed from a long time as the interim standard (IFRS 4) allowed entities to use different approaches to account for similar insurance contracts written in different countries that made it difficult for the investors to analyze and compare the financial results of similar companies operating in different jurisdictions.
The purpose of the standard is to provide entities with a standarise model for accounting of all the aspects of the insurance contracts within all the IFRS jurisdictions so that to achieve transparency and consistency with regards to the accounting of Insurance contracts across all the IFRS jurisdictions. The new standard allows the investors with a platform to compare the financial results of similar entities operating in different jurisdictions.
According to global IFRS insurance leader at Deloitte, Francesco Nagari, the new standard can be described as once in a lifetime change with regards to the accounting for insurance arrangements and policies.
As per global IFRS insurance leader at PwC, Alex bertolotti, the new standard on insurance contracts is the biggest change made in years with regards to the reporting of insurance contracts and other arrangements and will impact all the entities that are involved in insurance agreements and arrangements.
According to IFRS 17 accounting lead at Deloitte UK, Mark McQueen, it is expected that the implementation of the requirements of IFRS 17 will require major changes to be made with respect to data, systems and different reporting processes of the insurance companies. The insurers will have to incur a lot of expenditure in implementing the requirements of the new standard and the implementation costs for the insurers operating in the EU is expected to be around at three to four billion Euros.The new standard will take effect from 1 January 2021, but companies can adopt the standard before its effective date as IASB has permitted earlier adoption of IFRS 17.