The International Accounting Standards Board (IASB) today issued International Financial Reporting Standard 4 Insurance Contracts (IFRS 4). The publication of this IFRS provides, for the first time, guidance on accounting for insurance contracts, and marks the first step in the IASB’s project to achieve the convergence of widely varying insurance industry accounting practices around the world.
In developing IFRS 4, the IASB balanced the urgent need for an international standard on accounting for insurance contracts with the recognition that developing a global consensus on a rigorous and comprehensive approach would require extensive consultation beyond the time frame available. In particular, consultation on a completely new international approach could not be completed in time to meet the starting date of 2005 set by the European Union and other jurisdictions. In that light, IFRS 4 completes only the first phase of the IASB’s insurance project. It is aimed at introducing improved disclosures for insurance contracts, and modest improvements to recognition and measurement practices, without requiring extensive changes that might need to be reversed when the IASB completes the second phase of this project.
In the second phase, the IASB will address broader conceptual and practical issues related to insurance accounting. These will be the subject of IASB deliberations and consultations with interested parties that will resume in the second quarter of 2004. The IASB’s next step will be the establishment of an international working party of about fifteen members. The working party will be composed of experts active in the insurance industry and the accounting profession, representatives of the appropriate regulatory and supervisory authorities, and investment analysts. Although the completion of any long-term solution for insurance contracts may take several years to complete, the IASB is willing to revise IFRS 4 in the short term in the light of any immediate solutions arising from the working party’s discussions. Further details of the insurance working party will be announced shortly.
Introducing IFRS 4, Sir David Tweedie, IASB Chairman, said:
Developing a widely respected accounting standard that addresses the many complex practical and conceptual problems in insurance accounting remains a priority for the IASB. Reaching a conclusion on these issues, however, will require careful consideration of all issues and viewpoints that will occupy the Board for some time and could not possibly be completed by the 2005 deadline set in many jurisdictions. At the urging of users, insurers and regulators, we have developed IFRS 4 to provide interim guidance on insurance accounting practices without imposing on the insurance industry significant costs that could prove to be wasted when we complete the more comprehensive project.