The International Accounting Standards Board (IASB) has issued amendments to its existing insurance contracts standard, IFRS 4 to ensure that the rules do not contradict the forthcoming IFRS 9 Financial Instruments, although the revised standard will not come into force before 2020
The amendments address concerns arising from implementing the new financial instruments standard, IFRS 9, before implementing the replacement standard that the IASB is developing for IFRS 4. These concerns include temporary volatility in reported results.
Insurers have been vociferous in their criticism of the lack of continuity between IFRS 9 and IFRS 4 which makes it difficult to apply the new financial instruments standard across the insurance sector.
The new insurance contracts standard is currently being drafted and will not come into force before 2020.
IASB has accepted that there will ‘be transitional challenges and have given companies who deal with insurance contracts two voluntary options for dealing with these’.
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 recognise 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; and
- 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 following table summarises the effect of the amendments to IFRS 4 on the IFRS Taxonomy.
Amendments to IFRS 4 | Overview of change to the IFRS Taxonomy |
Presentation of the overlay approach. | Addition of new line items |
Disclosure of information about the overlay approach | Addition of new line items, new tables |
Disclosure of information about temporary exemption from IFRS 9 | Addition of new line items, new tables |
The amendments to IFRS 4 supplement existing options in the standard that can already be used to address the temporary volatility.
The closing date for the Proposed Update 2 comment period ends on 15 November 2016.
The IASB proposed update to the IFRS Taxonomy reflecting the amendments to IFRS 4 is available here