The International Accounting Standards Board (the Board) has issued IFRS 17 Insurance Contracts to replace the current IFRS 4, which will help investors and others better understand insurers’ risk exposure, profitability and financial position.
IFRS 4 has given companies dispensation to carry on accounting for insurance contracts using national accounting standards, resulting in a multitude of different approaches. Consequently, it is difficult for investors to compare and contrast the financial performance of otherwise similar companies.
IFRS 17 solves the comparison problems created by IFRS 4 by requiring all insurance contracts to be accounted for in a consistent manner, benefiting both investors and insurance companies. Insurance obligations will be accounted for using current values – instead of historical cost. The information will be updated regularly, providing more useful information to users of financial statements.
Hans Hoogervorst, IASB Chairman, said:
The insurance industry plays a vital role in the global economy; high-quality information to market participants on how insurers perform financially is therefore extremely important. IFRS 17 replaces the current myriad of accounting approaches with a single approach that will provide investors and others with comparable and updated information.
In view of the range of accounting methods in use today, some countries will see more significant changes than others with the introduction of the new IFRS 17.
IFRS 17 has an effective date of 1 January 2021. Companies can apply it earlier and it will be supported by IASB by establishing a Transition Resource Group.
Details on IFRS 17 can be viewed from the International Financial Reporting Standards (IFRS) website.
Source: IFRS, 18 May 2017