IASB proposes amendments to IFRS 4 to address concerns about the different effective dates of IFRS 9 and the new insurance contracts Standard that will replace IFRS 4
23 December 2015
This edition outlines the proposed amendments to IFRS 4 Insurance Contracts set out in ED/2015/11 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (‘the exposure draft’) which was issued in December 2015 for public comment.
- The IASB published an exposure draft proposing an option for entities whose predominant activity is issuing contracts within the scope of IFRS 4 to defer temporarily the application of IFRS 9 and continue to apply IAS 39.
- The proposed deferral of IFRS 9 application includes a ‘sunset clause’ permitting deferral until annual periods beginning on or after 1 January 2021 or until the new insurance Standard becomes effective if this is an earlier date.
- The predominant activity condition is intended to be restrictive and will be assessed at the reporting entity level at a single point in time based on the ratio of insurance contract liabilities to the total liabilities. The exposure draft states that if only 75 per cent of liabilities are insurance contract liabilities, this would not meet the predominance condition.
- All entities issuing contracts within the scope of IFRS 4 would also have the option to apply the ‘overlay approach’ to the presentation of qualifying financial assets in their statement of comprehensive income. This approach would remove the impact of measuring financial assets at fair value through profit or loss (FVTPL) under IFRS 9 when they would not have been so measured under IAS 39 from profit or loss and present it instead in other comprehensive income.
- The temporary exemption from applying IFRS 9 would be effective for annual periods beginning on or after 1 January 2018 to align it with the mandatory effective date of IFRS 9 and the overlay approach amendments are effective when the entity first applies IFRS 9.
- The proposals do not apply to first time adopters of IFRS.
- Comments on the proposed amendments are requested by 8 February 2016.