The IASB has started redeliberating its proposed amendments to IFRS 4 Insurance Contracts, which are expected to be effective on the date of initial application of IFRS 9 Financial Instruments.
In December 2015, the IASB issued an exposure draft to address concerns about the differing effective dates of IFRS 9 Financial Instruments and the forthcoming insurance contracts standard. At its March meeting, the IASB considered the feedback received, and made key decisions that set the direction for its redeliberations and finalisation of the amendments.
“Confirmation of an optional temporary exemption at the reporting entity level will allow ‘pure’ insurance entities to postpone application of IFRS 9.”
The IASB received 95 comment letters in response to the exposure draft proposing to amend IFRS 4. It also consulted users of financial statements through a separate outreach process.
Users of financial statements tended to favour the overlay approach, whereas preparers generally preferred the temporary exemption from IFRS 9. Both groups believed that the scope of the temporary exemption should be widened. Some preparers supported allowing the assessment and application of the temporary exemption below the reporting entity level, but users generally disagreed with this view.
The Board confirmed that both approaches would be retained as options and that the eligibility criteria for the temporary exemption would be assessed at the reporting entity level. This means that financial conglomerates with significant non-insurance activities would not be eligible for the temporary exemption at their consolidated level. However, they would be permitted to apply the overlay approach.
It also agreed that there should be a fixed expiry date for the temporary exemption.
The IASB will discuss the remaining technical issues in April and May. In particular, it will consider the eligibility criteria, additional disclosure requirements and the expiry date for temporary exemption.
The final amendments to IFRS 4 are currently expected to be published in September 2016.
Visit our IFRS – Insurance hot topics page for the latest developments in the insurance contracts project.
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