Insurance Accounting Newsletter — Issue 17, August 2010
This edition is entitled The start of a new accounting era.
On Friday 30 July 2010, the International Accounting Standards Board (IASB) reached an important milestone in its project to improve accounting for insurance contracts by publishing an Exposure Draft (ED) that fundamentally revises IFRS 4 Insurance Contracts. The ED is the latest step in developing an entirely new insurance accounting standard that will complete the Phase II of the IASB’s Insurance Contract project (IFRS 4 Phase II). The comment period closes on 30 November 2010 and the final standard is due to be released in June 2011. Although the implementation date has not yet been decided upon, it is proposed to be aligned with the mandatory application of the new accounting standard for investments (IFRS 9 Financial Instruments), currently due on 1 January 2013. Based on comments it receives, the IASB will consider aligning both standards’ implementation dates.
The IASB objectives with this ED are to eliminate inconsistencies and weaknesses in existing practices allowed under the current text of IFRS 4 Insurance Contracts (published in 2004), the outcome of the first phase of the IASB’s Insurance Contracts project (IFRS 4 Phase I).
The current IFRS 4 is an interim standard that allows insurers to continue using, for their insurance contracts, existing non-IFRS accounting practices that have developed in a piecemeal fashion over many years. With this ED, the IASB aims to deliver a comprehensive, investor focused and consistent IFRS accounting framework informed by the principles of current measurement and transparency.
The publication of an IFRS for insurance contract accounting has been under development since 1997 and the ED of IFRS 4 Phase II finally proposes a standard for all insurance and reinsurance contracts, both life and non-life. Since the Financial Accounting Standards Board (“FASB”) joined the project in October 2008, the development of IFRS 4 Phase II has rapidly evolved into a key convergence project. The FASB will also be publishing the IASB’s ED in the coming weeks as a Discussion Paper that will seek the views of US reporting entities and users on the convergence of US Generally Accepted Accounting Principles (US GAAP), towards the new IFRS model.