Insurance Accounting Newsletter
Greater certainty on the roadmap to the new IFRSs comes with a likely end of IFRS-US GAAP convergence in insurance.
There have been significant outcomes since the summer following an increased level of activity from both the IASB and the FASB. The last decision in this period has perhaps the most impact as it significantly removes the uncertainty on the timetable for the adoption of the new IFRSs.
At their meeting on 19 October the IASB decided that they will not change the mandatory effective date of IFRS 9 ‘Financial Instruments – Recognition and Measurement’ from the 1 January 2015. They also decided that the IFRS 4 – Phase II ‘Insurance Contracts’ will be effective approximately three years after its publication date. This is currently targeted for 2014 which results in a mandatory effective date of 1 January 2017 – one year later than anticipated prior to this recent round of decisions. The IASB acknowledges that this date may slip by a further year to 2018 if the final IFRS is released towards the very end of 2014. The final draft of the new IFRS is due to be released in April or May next year and that will be the last opportunity for interested parties to comment on the proposals before they become mandatory.
From the perspective of the content of these final rules, the joint meeting between the IASB and the FASB on 24 September approved the long-awaited transition requirements, in particular considering the practical expedient for restating the residual/single margin for policies in-force at the transition date which would represent the major source of accounting profit under both the future IFRS and US GAAP. This issue is critical particularly for the life insurers.
Finally, the IASB and FASB joint meeting on 17 October approved the presentation of premiums and claims in the statement of comprehensive income with the ‘Earned Premium’ presentation being selected on the grounds that it was a better indicator of future performance and more consistent with ‘revenue recognition’ in other industries.