In May 2017, the International Accounting Standards Board (IASB) issued IFRS 17 Insurance contract. How will this impact your organisation?
In May 2017, the IASB issued IFRS 17 Insurance contract. The current standard, IFRS 4, allows entities to use their local GAAP accounting for insurance contracts. IFRS 17 will move insurers towards a greater consistency of application.
In simple terms, IFRS 17 requires entities to recognise insurance contracts at the estimated future cash flows – adjusted for time value of money, risk and an element of unearned profit. There is also a simplified approach, based on the premiums received, which applies to certain types of contracts, including short term ones. The new standard is applicable for annual periods beginning on or after 1 January 2021. The question is: how does an entity know if it applies to them?
As the name suggests, the standard applies not only to insurance entities but also to entities that issue insurance or reinsurance contracts. What does this mean for non-insurance entities? Have they issued any insurance contracts?
The good news is that the scope of IFRS 17 is probably narrower than the scope of IFRS 4. If entities did not previously apply IFRS 4 to any contracts, then they probably will not have to apply IFRS 17 either. Examples of contracts that may cause concern include:
In essence, IFRS 17 will generally only be relevant to entities that applied IFRS 4. However, some entities that applied IFRS 4 may well be required to apply IFRS 15 or IFRS 9, instead of IFRS 17, in the future.