Finally, a two decade long journey by the International Accounting Standard Board (IASB) has concluded with the issuance of the new insurance accounting standard IFRS 17. The new standard is effective from 1 January 2021 with an option to early adopt, only if the company also applies IFRS 9 ﬁnancial instruments and IFRS 15 revenue from contracts with customers. IFRS 17 will supersede the earlier standard on insurance contracts (IFRS 4).
IFRS 17 is the ﬁrst comprehensive international accounting standard for insurance contracts issued by a company, including the reinsurance contracts. The existing IFRS 4 does not prescribe any accounting for measurement of insurance contracts. Instead, it permits companies to use local accounting practices (subject to liability adequacy test). As a result, currently many divergent accounting practices are being followed by companies, thereby reducing the comparability of ﬁnancial statements. IFRS 17 will result in increased comparability of ﬁnancial statements globally and will improve the quality of the ﬁnancial information.
The new standard will provide information about the current and future proﬁtability of insurers.
IFRS 17 requires a company to recognize revenue as it performs the insurance services, which is consistent with revenue recognition principle under IFRS 15. It makes the basis of revenue recognition by an insurer at par with other industries.
The major changes under the new standard is envisaged in the accounting of long term insurance contracts as compared to the changes expected for short term insurance contracts (typically non-life contracts such as vehicle or home insurance).
The changes proposed by the new standard are multifold. This publication brieﬂy discusses some of the major developments and provisions under the new standard including the portfolio approach of grouping contracts, accounting model (including the simpliﬁed approach), signiﬁcance of time value of money, relevance of using current estimates, variable fee contracts accounting and the transition approach.
This paper also provides our perspective on the key considerations for implementing the new standard.