Amendments to IFRS 17
Cover Paper (Agenda Paper 2)
At its March meeting, the IASB discussed the remaining issues resulting from the feedback received on the Exposure Draft ED/2019/4 Amendments to IFRS 17, which are the effective date of IFRS 17 and the expiry date of the IFRS 9 temporary exemption in IFRS 4.
Agenda Paper 2C (not summarised below) for the meeting offers an overview of all topics discussed and the Board's tentative decisions.
After its March 2020 meeting, the Board has now completed its planned redeliberations of the feedback on the ED. The Board gave permission to start the balloting process at this meeting. The staff now plan to draft the amendments to IFRS 17 and bring any issues they identify during the balloting of the amendments for discussion at a future meeting. The staff expect that the amendments will be issued in the second quarter of 2020, in line with the plan the Board set out in the ED.
Effective date of IFRS 17 and IFRS 9 temporary exemption in IFRS 4 (Agenda Paper 2A)
Background
In the original version of IFRS 17, the Board had set an effective date of 1 January 2021, with earlier application permitted (as long as IFRS 9 is applied as well). The ED proposed deferring this date by one year.
In the comment letters received, almost all respondents agreed with that proposed deferral. However, some respondents asked for a further deferral, while others raised concerns about another potential delay.
The staff analysed those comments as follows:
Those respondents who were concerned about a further deferral were specifically concerned about delaying much-needed improvements to existing accounting practices for insurance contracts or the loss of momentum in implementation projects and increased implementation costs.
Those who asked for a further deferral want to allow for a well-controlled and robust implementation. Despite significant resources being dedicated to IFRS 17 implementation, more time is required to implement the Standard.
While the Board had already given a long effective date, the staff agree with those respondents who stated that implementation by 2022 would be demanding. The staff also acknowledge that some of the amendments need more implementation work.
The staff agree with respondents who stated the importance of an aligned effective date of IFRS 17 around the world. Given the delays in some endorsement processes around the world, respondents fear that the effective date might be set differently by jurisdictions. An aligned effective date of 1 January 2022 might therefore not be achievable.
With regard to the IFRS 9 temporary exemption in IFRS 4, the staff think that the benefit of extending the relief by a further year is appropriate to maintain the alignment of the initial application of IFRS 17 and IFRS 9 for specified insurers. In the staff’s view this could outweigh the disadvantage of a further delay to the implementation of IFRS 9 by those insurers.
Staff recommendation
Consequently, the staff recommended that the Board:
- defer the effective date of IFRS 17 (incorporating the amendments) to annual reporting periods beginning on or after 1 January 2023; and
- extend the fixed expiry date of the temporary exemption from applying IFRS 9 in IFRS 4 to annual reporting periods beginning on or after 1 January 2023.
Board discussion
Many Board members expressed discomfort with delaying IFRS 17, however ultimately supported the staff recommendation as the benefit of delaying outweighs its cost.
One Board member said that many users of financial statements have requested the earlier effective date as urgent action is needed. He said that it would be seven years between publication of the Standard and the first set of financial statements being published under IFRS 17. On the other hand, he acknowledged the longer than expected implementation time of IFRS 17 and the longer time to endorse the Standard in some jurisdictions. Another Board member agreed and said that the delay would enable all countries to apply IFRS 17 at the same time and would reduce challenges in developing systems, especially for smaller companies. These arguments were supported by several Board members.
The Chairman said that he supported the staff recommendation so that jurisdictions that have worked hard and fast to implement the Standard into local law are not punished by being exposed to the Standard before those jurisdictions that have taken a longer time to endorse. He said that this is regrettable as he wanted the Standard to be effective before the next financial crisis, which is now no longer possible. He found it especially concerning that the insurance sector is not only working with an outdated insurance standard, but also with an outdated financial instruments standard.
On the temporary exemption to apply IFRS 9, one Board member said that this proposal made him think whether delaying IFRS 9 for insurers was a good idea in the first place. The decision to delay was originally taken so that insurers would not have to implement two big Standards in a short time. However, it is now not a short time anymore and with hindsight, the Board might have taken a different route. On the other hand, there is some benefit of insurers applying the two Standards at the same time. Also, if the staff proposal is not supported today, the situation that the Board wanted to avoid would arise (i.e. the two Standards would have to be implemented within one year of each other). Other Board members supported that and said the practical implication of having to implement IFRS 9 first and then IFRS 17 should be considered. Many companies have a joint implementation project for both Standards. The disclosures required by IAS 8 and IFRS 4 would help to understand the impact of IFRS 9 on insurance companies. Also, the temporary exemption is optional and insurers could therefore apply IFRS 9 earlier than IFRS 17.
One Board member rejected the staff recommendation as the benefits of IFRS 9 are significant, especially in these difficult times.
Board decision
On the deferral of the effective date of IFRS 17 to annual reporting periods beginning on or after 1 January 2023, 12 of the 14 Board members supported the recommendation (1 was absent).
On the extension of the fixed expiry date of the temporary exemption from applying IFRS 9 in IFRS 4 to annual reporting periods beginning on or after 1 January 2023, the Board supported the recommendation with 12:2 votes.
Due process steps and permission to balloting (Agenda Paper 2B)
This paper set out the due process steps that the Board has taken in developing the amendments and asked the Board:
- to confirm that it is satisfied that it has complied with the due process requirements.
- to give permission to begin the balloting process for the amendments to IFRS 17.
- whether any Board member intends to dissent from the issuance of the amendments.
The staff recommended that the amendment to IFRS 4—reflecting the extension of the fixed expiry date for the temporary exemption from applying IFRS 9—is balloted separately from the amendments to IFRS 17 (including consequential amendments to other IFRS Standards). This will give jurisdictions with an endorsement process the possibility to endorse the temporary exemption independently (and possibly more quickly) and so avoid endorsement after the current temporary exemption has run out (January 2021).
Board decision
All Board members:
- confirmed that they are satisfied that the Board has complied with the due process requirements.
- gave permission to begin the balloting process for the amendments to IFRS 17 and IFRS 4.
No Board member signalled intent to dissent from the issuance of the amendments.
