IFRS Foundation steps forward to help stakeholders adopt IFRS 17 insurance standard
Ten months after it published what it called the world’s “first truly international IFRS Standard for insurance contracts”, the IFRS Foundation is ramping up its activities aimed at helping insurance companies and other industry stakeholders to prepare for what is officially known as IFRS 17.
The London-based organisation, which wraps around the International Accounting Standards Board (IASB), has posted a two-minute explanatory video on YouTube (pictured above), published various documents on its website that detail the new standard and attempt to answer in advance all the potential questions insurance industry experts and investors are likely to have, and is holding events in cities to which insurance industry players and others are being invited, according to a spokesperson for the IFRS Foundation.
The IFRS Foundation and the Canadian Accounting Standards Board have also co-hosted an IFRS17 educational webinar which was specifically aimed at investors.
As reported here last May, IFRS 17 replaces IFRS4, which was brought in as an interim standard in 2004, and, the IASB says, is designed to help investors and others better understand insurers’ risk exposure, profitability and financial position.
IFRS 17 has an effective date of 1 January 2021, but companies may apply it earlier if they wish.
The idea behind the new standard is that it is to be adopted automatically by all of the more than 125 countries that thus far have agreed to conform to the global accounting standard known as the International Financial Reporting Standards, or IFRS, since it was first conceived in the early years of this century.
What is easy for some new to the world of international accounting standards to overlook is that the now-widespread adoption of the IFRS actually represents a stunning achievement on the part of a handful of people who pushed ahead with the idea of a single global accounting standard – even when it seemed an impossible goal – over the past three decades.
Forty years ago, accounting standards tended to determined by whichever country a business happened to be located in.
This lack of a single standard was, say those who remember it, inconvenient, messy and expensive, particularly as more companies sought to do business internationally.
Thus it was in 1973 that a group of countries got together to form what they called the International Accounting Standards Committee, based in London. By the 1990s the organisation had become the International Accounting Standards Board, headed up by a Scotsman named David Tweedie, who at this point had already made his name (and nailed a knighthood) for having pushed for British companies to be required to show their pension-fund liabilities on their books.
By 2013, former UK chancellor Lord Lawson was referring to him, in a Daily Telegraph article, as the “father of the IFRS [Standards]”.
That said, even the existing IFRS is considered a step too far for some countries in its current form – the US, for example, has yet to adopt it in spite of 15 years of negotiations thus far.
Against this backdrop, the IFRS Foundation is taking seriously its role in educating what effectively amounts to all of the accounting practitioners in an entire industry – in this case, insurance – as to how they should incorporate the new standard in preparing their employers’ quarterly and annual reports.
At the same time it’s also addressing the need educate those who make use of such quarterly and annual reports to study and compare the performances of insurance companies, for such purposes as deciding whether to buy or sell shares in them or, in some cases, acquire them outright.
One jurisdiction that has formally announced its adoption of IFRS 17 – in the form of HKFRS 17, “a word-for-word adoption of IFRS 17” – is Hong Kong, via the Hong Kong Institute of Certified Public Accountants, which announced the fact in January in a statement on its website addressed to “chief financial officers of Hong Kong authorised insurers”.
“The HKICPA and the IASB recognise the vital role that the Hong Kong insurance industry plays in the global economy, and that HKFRS/IFRS 17 is expected to bring about significant operational and reporting changes and benefits,” the statement said, before going on to invite such CFOs to an event at which the key aspects of the new accounting standard were due to be addressed by HKICPA and IASB representatives.
Among the issues that have been raised about the pending adoption of HKFRS 17 has been the fact that it will reveal the commissions paid by insurers to their bancassurance partners on the sales of their products, a recent article in the Hong Kong press suggested.
What it will do
According to Nick Anderson, an IASB member, IFRS 17 will introduce “fundamental changes to existing insurance accounting practices for some companies”.
“Investors and analysts will need to factor these changes into their analyses, Anderson (pictured below) adds, in an explanation on the IFRS Foundation’s website.
“Although many investors and analysts were consulted during the development of the new Standard, it is important that they become familiar with IFRS 17 now that it has been finalised. For that reason, we will continue to invest considerable resources into meeting and educating investors and other users of financial statements.”
To read what the IFRS Foundation says are the “top five questions” people have about IFRS 17, see page 2 (below). For general information about IFRS 17, including details about how to contact the IFRS 17 “implementation team”, click here.