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The new insurance accounting standard AASB 17 Insurance Contracts (AASB 17) applies for annual reporting periods beginning on or after 1 January 2023. Earlier application is permitted for entities that apply AASB 9 Financial Instruments on or before the date of initial application of the standard.
The ask from ASIC
In November 2020, ASIC issued a media release requiring insurers to disclose the impact of AASB 17 in their 31 December 2020 financial reports and, by implication, thereafter. As such, although the standard will not be effective until 2023, entities are expected to provide users of financial statements with adequate information to:
- assess the impact of the new standard on the future financial reports and capital; and
- understand the state of readiness with regard to implementation including resources, systems and governance.
The ASIC announcement does make it clear that insurers are expected to disclose quantitative impacts of adopting IFRS 17 “for the reporting date that coincides with the start of the first comparative period that will be affected in a future financial report”. For December reporting entities this will be the financial statements for the year ended 31 December 2021 and for June reporting entities this will be the financial statements for the year ended 30 June 2022.
AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (paragraphs 30 and 31) also requires entities to disclose adequate information with regard to the impact of new accounting standards which are not yet effective. In particular, disclose whether the entity will be impacted by the forthcoming accounting standard and provide known or reasonably estimable information relevant to assessing the possible impact that application of AASB 17 will have on the entity’s financial statements in the period of initial application. AASB 108 combined with the recent ASIC announcement provides preparers of financial statements with a pathway of what they are expected to disclose and when.
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Key considerations for December 2020 reporting
The objective of the disclosures of the expected impact of AASB 17 on transition is to provide users adequate information for decision making. Entities should tailor the disclosures to the facts and circumstances of its business and implementation progress.
By referencing the requirements set out in AASB 108, the following are some key items that entities should consider when disclosing the expected impact of AASB 17 at 31 December 2020:
a) The fact that AASB 17 has not yet been applied, that it applies for annual reporting periods commencing 1 January 2023, and the date at which the entity expects to first apply AASB 17.
b) Details about the entity’s implementation progress. For example:
- Is there an implementation project team in place?
- What is the status of the implementation - not yet started, initial stage or in progress? Are milestones being met?
- Have the system, data and process changes been identified to satisfy information required under AASB 17? What is the current status of the changes? Will the system, data and process changes be implemented in time for AASB 17?
c) A description of the expected changes in accounting policy and likely impacts, for example:
- How are insurance contracts being grouped and which will be most impacted by AASB 17 adoption?
- What are the measurement models to be used and why?
- How is the contractual service margin to be determined and released to profit?
- How are contract boundary and coverage units to be determined?
- How is risk adjustment set and reviewed?
- How are onerous contracts being identified and accounted for?
- How are deferred acquisition costs being recognised, deferred and tested for impairment?
d) A description of the key judgements and estimates made.
e) A description of the transition approach(es) that will be used by the entity.
f) A description of the progress of the impact assessment and whether there will be an expected material or immaterial impact on the financial statements if known.
g) A description of whether there is an expected impact on compliance with financial condition requirements. For example: APRA capital or other solvency requirements and loan covenants.
h) A description of the expected quantitative impact if quantification is known.
i) The fact that estimates of the quantitative impact have been provided to APRA if any.
Further, if an entity is adopting AASB 9 along with AASB 17, entities should also disclose the expected impact of adopting AASB 9.
Entities with continuous disclosure obligations should be mindful of the need to potentially provide additional disclosures between reporting dates. In particular, those who are involved in the forthcoming Quantitative Impact Study with APRA will need to consider the extent to which information delivered to APRA needs to be shared with the market.
Stuart is a partner in our Sydney Audit and Assurance group with a focus on financial services clients. He has over 20 years’ experience working with a range of financial institutions in Australia and New Zealand. He is the appointed auditor for a number of APRA regulated general and life insurers. Stuart is an accredited US GAAP audit partner. Stuart has provided a range of other Assurance & Advisory services including internal audit, transaction support and regulatory consulting.
Anne has worked in the General Insurance Industry in Australia and the UK for more than 30 years and joined Deloitte in 2020 as Partner and Global IFRS 17 General Insurance Leader. Anne is a member of the International Accounting Standards Board Transition Resource Group (TRG), appointed in November 2017, and is Chair of the Australian Accounting Standards Board TRG, actively driving discussion and debate to support Australian implementation of IFRS 17. Anne has experience leading a global IFRS 17 implementation project through impact assessment, deep dive analysis of critical issues, policy development, practical application and design and managing senior stakeholders through this process. With a foundation in global financial reporting processes and delivery, establishing and running a global finance policy function and developing a robust finance control environment for a multinational national insurance company, Anne has a track record of implementing, streamlining and enhancing business systems and supporting reporting processes. Based in Australia, Anne is working with clients globally to deal with the challenge of implementing IFRS 17.
David is a Partner in our financial services practice based in Sydney. He has a number of year experience within financial services sector working on audit and assurance engagements in Australia, Bermuda, Canada and USA. David specialises in working with insurance clients which includes accompany them in their IFRS 17 transformation journey. David lives and breathes work agility and is committed to promoting and growing his talented team.