International Accounting Board Amends Insurance Standard

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By David R. Jones

Sept. 12 — New amendments to international insurance contract accounting standards can help ease the temporary volatility in financial reporting that companies can encounter when applying two separate international financial reporting standards.

The International Accounting Standards Board’s Sept. 12 issued amendments to IFRS 4: Insurance Contracts, which intend to reconcile the requirements of IFRS 4 with those of the board’s new financial-instruments standard, IFRS 9.

Covering All Insurers

The board is developing a replacement standard for IFRS 4, and the amendments deal with concerns about applying IFRS 9: Financial Instruments, before the revised insurance contracts standard takes effect.

“This IFRS describes any entity that issues an insurance contract as an insurer, whether or not the issuer is regarded as an insurer for legal or supervisory purposes,” the amendments said.

Two Approaches Offered

The amendments offer two methods for insurers, both of which are voluntary: the overlay approach and the deferral, or temporary exemption, approach.

The two options “are also available to an issuer of a financial instrument that contains a discretionary participation feature,” the amendments said.

Overlay Approach

Under the overlay approach, any company that issues insurance contracts can reclassify in other comprehensive income(OCI)—rather than in profit or loss—the volatility that could emerge from applying IFRS 9 before the revamped insurance contracts standard comes into force.

The overlay approach would expire once the revisions to IFRS 4 are released.

Temporary Exemption

The second method, the temporary exemption, is available only to companies whose activities chiefly involve insurance contracts.

These companies will be exempted from applying IFRS 9 until 2021 but will continue to apply International Accounting Standard 39: Financial Instruments: Recognition and Measurement.

Reassessing Eligibility

A company using the temporary exemption that undergoes a major change to its structure must reassess whether its activities still are predominantly tied to insurance—and, as a result, whether it remains eligible for the exemption.

In addition, an entity that applies the temporary exemption must disclose this information in its financial reporting.

All entities must cease using the temporary exemption no later than reporting periods starting on or after Jan. 1, 2021.

Completing Work on Amendments

Publication of the amendments culminates months of deliberations on a December 2015 exposure draft—ED/2015/11—which was designed to enable companies that issue insurance contracts to bring into line their accounting requirements for IFRS 4 and IFRS 9 (11 APPR 26, 12/18/15).

IASB decided the amendments' final provisions at its meeting in May (12 APPR 10, 5/20/16).

Voicing Dissent

One board member, Mary Tokar, dissented from issuing the amendments. She “believes that the amendment to permit insurers to use the overlay approach makes a temporary exemption from IFRS 9 unnecessary,” the amendments said.

Three Outcomes

Tokar said that the amendments would permit three different outcomes for insurers through:

  •  applying IFRS 9 without the overlay approach;
  •  applying IFRS 9 with the overlay approach; or
  •  using the temporary exemption to IFRS 9.

Tokar expressed concern “that this variety in approaches to accounting for financial instruments may significantly reduce comparability among insurers, and between insurers and other entities,” the amendments said.

‘Lack of Comparability.'

Completing work on the revised insurance standard remains the one major standard-setting initiative on IASB's agenda, board Chairman Hans Hoogervorst said in a Sept. 8 speech at an IFRS conference in Berlin.

“The lack of comparability and the often poor quality of current accounting practices in the insurance industry around the world is clearly unacceptable,” he said.

Drafting Insurance Contracts Standard

IASB has wrapped up its discussions on IFRS 4, and staff currently are drafting the revised standard.

“Given the complexity of many insurance contracts, this is no easy task and our staff are carefully testing that the wording is accurate and workable, using input from the industry,” Hoogervorst said.

He told meeting participants that the board is looking to complete its work on IFRS 4 as soon as possible but didn't give a target date for publishing the final standard.

To contact the reporter on this story: David R. Jones in London at

To contact the editor responsible for this story: Ali Sartipzadeh at

For More Information

The amendments are available at

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