The International Accounting Standards Board has 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 recognize 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.
The amendments will also 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.
“Both the new financial instruments Standard and the upcoming insurance Standard will improve the quality and comparability of financial reporting,” says Hans Hoogervorst, IASB Chairman. “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.