European Union adopts IFRS 17 — with annual cohort exemption

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23 Nov, 2021

The European Union has published a Commission Regulation endorsing IFRS 17 'Insurance Contracts', albeit with an exemption regarding the annual cohort requirement.

The Commission Regulation amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council was published in the Official Journal of the European Union on 23 November 2021.

The regulation adopts IFRS 17 Insurance Contracts and the June 2020 amendments to IFRS 17 with the same effective date as the IASB (1 January 2023). However, the regulation provides an optional exemption from applying the annual cohort requirement that relates to the timing of the recognition of the profit in the contract, the contractual service margin, in profit or loss. Entities making use of the exemption are not applying IFRSs as issued by the IASB and need to disclose the fact. The regulation states:

Investors should be able to understand if a company has applied the exemption from the annual cohort requirement for groups of contracts. A company should therefore disclose in accordance with International Accounting Standard 1 Presentation of Financial Statements, in the notes to its financial statements the use of the exemption as a significant accounting policy and provide other explanatory information such as for which portfolios it has applied the exemption.

The regulation also notes that Commission should by 31 December 2027 review the exemption from the annual cohort requirement taking into account the IASB post-implementation review of IFRS 17.

EFRAG has updated its endorsement status report to reflect the adoption.

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