What is IFRS 17?
IFRS 17 has been effective for annual
reporting periods since the beginning or after the 1st of January, 2023. Insurance
contracts are needed to combine features of a financial instrument and a service
contract. A lot of insurance contracts generate cash flows with substantial
variability through a long period of time. Here are some uses of the IFRS 17
through the IFRS website:
- It combines current measurement of the
future cash flows with the recognition of profit over the period that services
are provided under the contract - It presents insurance service results
(including presentation of insurance revenue) separately from insurance finance
income or expenses; and - It requires an entity to make an accounting
policy choice of whether to recognise all insurance finance income or expenses
in profit or loss or to recognise some of that income or expenses in other
comprehensive income.
Reasons to focus on IFRS 17
- Implementation challenges
- Selecting a liability measurement model
- Unit of account
- Need to adjust its system
- Risk adjustment determination methodology
Implementing challenges are new forms of reports,
required disclosures and the necessity to adjust the existing executive reports
and key accounting indicators. Selecting a liability measurement model is
insurance liabilities shall be measured as future cash flows which increased by
risk adjustment and CSM. The benefit of this is restricted variability of the
liability amount resulting fluctuations in market related assumptions. The IFRS
17 is useful for unity of account. It requires reporting entities to determine
and amortize the CSM by portfolio and unit of account. It is also useful to
adjust its system. The IFRS 17 normally carries out calculations on the unit of
account level results in several practical implications for IT systems which
leads to separating several units of account for each year of sales and each
portfolio makes it easy for it to adjust the system. It also helps with risk
adjustment which requires it to be presented separately from the expected value
of future cash flows. It is an important element of liability measurement under
IFRS.
History of the IFRS 17 known from the IFRS
The international accounting standards
board (board) issued IFRS 4 Insurance Contracts in March of 2004. IFRS 4 was an
interim standard which was meant to be in place until the board is done with
its insurance contracts project. IFRS 4 permitted entities to use a big variety
of accounting practices for insurance contracts to reflecting national
accounting requirements and variations of those requirements, subject to
limited improvements and specified disclosures. The board finally completed it
project on insurance contracts with the issuance of IFRS 17 in May 2017. It replaced IFRS 4 then to set out principles for the recognition, measurement,
presentation, and disclosure of insurance contracts within the scope of it.
You can have a look at the website as well, in case you want to know more about the IFRS standards. On the website, a lot of information is explained. Of course, you can ask any questions you have and we will answer as soon as we can. So if you want to read more information about IFRS 17, go to www.annualreporting.info.
