The International Accounting Standards Board (the Board) has today issued amendments to its existing insurance contracts Standard, IFRS 4.
The amendments address concerns arising from implementing the new financial instruments Standard, IFRS 9, before implementing the replacement Standard that the Board is developing for IFRS 4. These concerns include temporary volatility in reported results.
The amendments introduce two approaches: an overlay approach and a deferral approach. The amended Standard will:
- give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts Standard is issued; and
- give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until 2021. The entities that defer the application of IFRS 9 will continue to apply the existing financial instruments Standard—IAS 39.
The amendments to IFRS 4 supplement existing options in the Standard that can already be used to address the temporary volatility.
Hans Hoogervorst, IASB Chairman, said:
Both the new financial instruments Standard and the upcoming insurance Standard will improve the quality and comparability of financial reporting. However, we understand that there may be transitional challenges and have given companies who deal with insurance contracts two voluntary options for dealing with these.
The new insurance contracts Standard is currently being drafted and will have an effective date no earlier than 2020.
The Proposed IFRS Taxonomy Update relating to the Amendments is available here. The comment letters should be received by the Board before 15 November 2016.
- To view the Amendments to IFRS 4 click here;
- to view the Project Summary and Feedback Statement click here; and
- to view the project page click here.