IASB Aims to Reconcile Insurance, Instruments Provisions

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April 16 — Staff of the International Accounting Standards Board will ask it next week to reach several key decisions on applying its financial instruments standard to the pending update of its insurance contracts standard.

During the April 19-21 board meeting in London, staff will seek IASB approval for proposals to address the temporary impacts resulting from the differing effective dates of International Financial Reporting Standard: Financial Instruments, and the forthcoming IFRS 4: Insurance Contracts.

Reconciling Requirements

IASB issued a series of recommendations for squaring IFRS 4 and IFRS 9 accounting requirements in the December 2015 exposure draft, ED/2015/11 (11 APPR 26, 12/18/15).

Board Chairman Hans Hoogervorst said the ED would “balance meeting the needs of insurers with meeting the needs of users of financial statements.”

Staff Proposals

Staff recommendations, according to papers drafted for the April meeting, will address whether to:

  •  modify portions of the overlay approach for any company that issues insurance contracts;
  •  amend the qualifying criteria that would give some entities a temporary exemption from applying IFRS 9; and
  •  require additional disclosures for entities that apply the temporary exemption.


Overlay Approach

Under the overlay approach, companies that sell insurance contracts could remove from profit or loss the amount of incremental volatility from changes in measuring certain financial assets that would be produced when IFRS 9 is applied.

The approach, which the board approved at its meeting last month (12 APPR 06, 3/25/16), could be applied until the revised insurance contracts standard comes into force.

Temporary Exemption

IASB also approved during its March deliberations a measure offering qualifying entities a deferral, or temporary exemption, from applying IFRS 9 requirements.

The exemption would be available to entities with a high proportion of liabilities arising from contracts that fall within the scope of IFRS 4, compared with their total liabilities.

These entities engage primarily in insurance activities, staff noted, and as a result would be most affected by the two standards' differing effective dates.

Use of the temporary exemption from applying IFRS 9 as well as the overlay approach would be optional.

Proposals on Overlay Approach

Staff will recommend that IASB confirm the ED's recommendation that “a financial asset qualifies for the overlay approach if it is designated as relating to contracts that are within the scope of IFRS 4 and it is measured at fair value through profit or loss (FVPL) applying IFRS 9.”

The measure would require that a financial asset wouldn't have been measured at FVPL in its entirety by applying International Accounting Standard 39: Financial Instruments: Recognition and Measurement.

Overlay Disclosure Requirements

Other staff proposals would set options and requirements for using the overlay approach.

In addition, entities that apply the overlay approach must “disclose sufficient information to enable users of financial statements to understand how the amount of the overlay adjustment is calculated and the effect of the adjustment on the financial statements,” under a staff recommendation.

Applying Temporary Exemption

Staff proposals also would set criteria for what entities could use the temporary exemption.

Entities, for example, couldn't use the exemption if they had applied any version of IFRS 9—except if they'd used the standard's own-credit requirements separately from the rest of the standard.

Staff also has proposed adding to the ED's disclosure requirements for the exemption.

These would include directing entities “to present the information with a sufficient level of granularity to enable users of financial statements to understand the nature and the characteristics of the financial assets,” a staff paper said.

Remaining Technical Issues

IASB plans to tackle the ED's remaining technical issues in May, such as:

  •  setting a fixed expiry date for the temporary exemption;
  •  determining whether entities can stop applying the temporary exemption prior to the fixed expiry date;
  •  deciding whether the overlay approach should have a fixed expiry date; and
  •  resolving whether first-time IFRS users should be barred from applying either the temporary exemption of the overlay approach.


IFRS staff members are looking to publish final amendments to IFRS 4 in September.

To contact the reporter on this story: David R. Jones in London at correspondents@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For More Information

Papers drafted for the April IASB meeting are available at http://www.ifrs.org/Meetings/Pages/IASB-Meeting-April-2016.aspx.

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