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IASB proposes amendments to address concerns about the different effective dates of IFRS 9 and the new insurance contracts standard

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Dec 09, 2015

On December 9, 2015, the International Accounting Standards Board (IASB) published an exposure draft (ED/2015/11) with proposed amendments to IFRS 4 'Insurance Contracts' that are intended to address concerns about the different effective dates of IFRS 9 'Financial Instruments' and the forthcoming new insurance contracts standard. Comments are requested by February 8, 2016.

As it has become obvious that the effective date of the forthcoming IFRS on insurance contracts can no longer be aligned with the effective date of IFRS 9, Financial Instruments there have been calls for the IASB to delay application of IFRS 9 for insurance activities and align the effective date of IFRS 9 for those activities with the effective date of the new insurance contracts standard.

The amendments proposed in ED/2015/11 Applying IFRS 9, Financial Instruments with IFRS 4, Insurance Contracts (Proposed amendments to IFRS 4)are intended to provide two options for entities that issue insurance contracts within the scope of IFRS 4:

  • an option that would permit entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets; this is the so-called overlay approach;
  • an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4; this is the so-called deferral approach.

The application of both approaches would be optional and an entity would be permitted to stop applying them before the new insurance contracts standard is applied.

Three Board members voted against the publication of the ED because they do not agree with the proposal to provide entities with predominant insurance activity with a temporary exemption from applying IFRS 9. These Board members argue that the deferral approach will reduce comparability, including between entities that issue insurance contracts. They acknowledge the concerns voiced but are of the opinion that the overlay approach offers enough relief and makes a temporary exemption from applying IFRS 9 unnecessary. They are also concerned that delays might occur in the insurance contracts project that would exceed the three year span the deferral approach is intended to be limited to.

The exposure draft is only open for comment for 60 days. The IASB notes that the Due Process Handbook permits a comment period shorter than the standard minimum period of 120 days if the matter is narrow in scope and urgent, which the IASB believes is the case with these amendments. The IASB will consider the comments that it receives on the proposals and intends to complete its redeliberations as soon as possible in 2016.

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