New effective date for IFRS 17
IASB decides to make it 01 January 2023
On 17 March 2020, the International Accounting Standards Board (IASB) has decided on two (2) key actions regarding IFRS 17 Insurance Contracts:
- Defer the effective date of the Standard to annual reporting periods beginning on or after 1 January 2023;
- Extend exemption currently in place for some insurers regarding the application of IFRS 9 Financial Instruments to enable them to implement both IFRS 9 and IFRS 17 at the same time.
While timely implementation of IFRS 17 is vital to improve the quality and comparability of accounting for insurance contracts, this decision is believed by the Board to enable insurers around the world to implement the new Standard at the same time, thus to be beneficial for investors, insurers and other stakeholders.
The Board expects to issue the amendments to IFRS 17 in the second quarter of 2020. You could find more information about this decision on the official website of IFRS here.
About IFRS 17:
Being a comprehensive International Financial Reporting Standard (“IFRS”) to build a consistent accounting framework for all insurance contracts, IFRS 17 was issued by the International Accounting Standards Board (“IASB”) in May 2017. It will replace IFRS 4 on accounting for insurance contracts with effective date on 1 January 2023.
IFRS 17 applies one accounting policy for all insurance contracts, in which they are initially measured as the sum of the fulfillment cash flows (“FCF”) and the contractual service margin (“CSM”). FCF takes into consideration the present value of net future cash flows, plus an explicit risk adjustment surrounding the uncertainty with regards to the amount and timing of cash flows for the insurance risk. Whilst CSM represents the unearned profit component of the insurance contract liability presented in the balance sheet and recognized in the income statement as a company provides services under insurance contracts. In case contracts are onerous, losses are recognized immediately in profit or loss, with no CSM recognized on the Balance Sheet on initial recognition. Besides, IFRS 17 allows a company to use a simplified approach to measure some short-term insurance contracts. There would also be a new financial statement presentation for insurance contracts, including a revised definition of revenue, and additional disclosure requirements.
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Bui Van Trinh
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Doan Yen Chau
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Phan Vo Dang Khoa
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