The Insurance Contract IFRS 17 clarifies new transition requirements to help allow issuers to give better information to investors during their first standard application.
The Insurance Contract IFRS 17 has been recently amended by the International Accounting Standards Board (IASB), clarifying new transition requirements to help allow issuers to give better information to investors during their first standard application. However, these amendments will not affect any of the other provisions of IFRS 17.
As a refresher, the IFRS Insurance contract is both a financial instrument and a service contract that aims to give helpful information about the following features:
- IFRS 17 combines the current measurement of the future cash flows with profit recognition over the period that services are provided under the contract.
- IFRS 17 presents insurance service results (including presentation of insurance revenue) separately from insurance finance income or expenses; and
- IFRS 17 requires an entity to make an accounting policy choice of whether to recognise all insurance finance income or costs in profit or loss or to recognise some of that income or expenses in other comprehensive income.
The amendment was implemented due to the increasing number of temporary accounting mismatches caused by the differences between Financial Instruments, IFRS 17 and IFRS 9. The IASB states that these were the cause of temporary accounting mismatches between the IFRS’ financial assets and insurance contract liabilities, found in the comparative information used to present their financial statements when investors first apply for IFRS 17 and IFRS 9.
The new amendment is set to remove these mismatches so that the comparative information to investors would be more beneficial for the issuers. Issuers will now be given an additional option when presenting close information regarding financial clients.
IFRS 17 will take effect for annual reporting periods starting on or after January 1, 2023, however, note that earlier applications are still permitted so long as IFRS 9 is also implemented.