The International Accounting Standards Board (IASB) has published for public comment a revised Exposure Draft of proposals for the accounting for Insurance Contracts. The Exposure Draft builds upon proposals published in 2010, and reflects feedback received during the extensive public consultation period that followed the publication of those proposals.
The revised proposals aim to provide a consistent basis for accounting for insurance contracts and to make it easier for users of financial statements to understand how insurance contracts affect an entity’s financial position, financial performance and cash flows.
While the model presented in the 2010 Exposure Draft was broadly supported, some specific issues were raised that the IASB has sought to address. The revised proposals respond to those issues by introducing enhancements to the presentation and measurement of insurance contracts while seeking to minimise artificial accounting volatility.
When the IASB began its work in 2001, there was no Standard on Insurance Contracts in the International Accounting Standards (IAS).
In preparation for the adoption of International Financial Reporting Standards (IFRS) by the European Union and others in 2005, the IASB introduced an interim standard (IFRS 4) until a more comprehensive review of the accounting for insurance contracts could be completed.
The first phase of that comprehensive review began in 2007 with the publication of a Discussion Paper followed by an Exposure Draft that was published for public comment in 2010.
The revised Exposure Draft sets out in full the proposals for the accounting for insurance contracts. However, respondents are asked for comments on the key areas that the IASB has changed as a result of the responses it received to the 2010 Exposure Draft.
In a statement, KPMG notes the move is the biggest ever financial reporting change for most insurers.
“The new accounting model for insurance contracts proposed by the IASB would introduce more volatility to the profit and loss account but more accurately reflect the risks and liabilities undertaken by insurers, bringing insurance accounting into the 21st century – but not without a cost," according to according to Gary Reader, KPMG’s global insurance advisory leader. "The devil is in the detail and the scale of change would depend on the accounting bases that insurers use today.”