After almost two decades in development, International Financial Reporting Standard 17 (IFRS 17) came into effect on 1 January 2022, replacing IFRS 4. This means that IFRS 17 is effective for reporting periods beginning on or after 1 January 2023, with earlier adoption permitted if both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments have also been applied. The temporary exemption to IFRS 9 Financial Instruments has been extended to 1 January 2023.
IFRS 17 applies to (re)insurance contracts to the extent that risk is accepted from a policyholder (i.e. by providing that policyholder with a level of compensation. (Re)Insurers will be required to assess:
- the risk-adjusted present value of future cash flow; and
- the unearned profit in contracts.
IFRS 4 permitted the use of a wide variety of accounting practices for insurance contracts. This approach made it difficult to compare results. It was universally agreed that a harmonized approach was required. As such, IFRS 17 was designed to create a transparent, consistent and high-quality global standard by providing for unified recognition, measurement, presentation and disclosure requirements for all types of insurance contracts so that the true financial position of insurance contracts can be ascertained, thus increasing the comparability of results.
Entities should ensure that:
- the board has a sufficient level of understanding of IFRS 17;
- staff have been sufficiently trained;
- there are sufficient resources and expertise in place to achieve compliance;
- the relevant IT and infrastructure have been developed and put in place;
- there are arrangements in place to ensure the sufficient oversight of any outsourcing used; and
- there are appropriate arrangements in place to mitigate operational risk associated with the implementation of IFRS 17 and to facilitate a smooth transition.
Contributed by Orla Trant