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IASB finalises narrow-scope amendments to IFRS 17 and IFRS 4

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25 Jun 2020

The International Accounting Standards Board (IASB) has issued 'Amendments to IFRS 17' to address concerns and implementation challenges that were identified after IFRS 17 'Insurance Contracts' was published in 2017. The amendments are effective for annual periods beginning on or after 1 January 2023 with earlier application permitted. The IASB has also published 'Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4)' to defer the fixed expiry date of the amendment also to annual periods beginning on or after 1 January 2023.

 

Background

Since IFRS 17 Insurance Contracts was issued in May 2017, the Board has been monitoring the implementation and has learned about concerns and implementation challenges. The Board had previously indicated that it would consider whether additional action is needed to address matters arising during implementation. At the October 2018 meeting of the Board a list of 25 potential amendments to the standard was identified and the criteria against which any possible amendment would be considered were agreed. An exposure draft of proposed amendments was published on 26 June 2019 with comments requested by 25 September 2019.

In the redeliberations in the project on possible amendments to IFRS 17 following the end of the comment period, the IASB refined its proposals and took additional feedback by constituents on board resulting in the final amendments issued today.

 

Changes

The main changes resulting from Amendments to IFRS 17 and Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4) are:

  • Deferral of the date of initial application of IFRS 17 by two years to annual periods beginning on or after 1 January 2023 and change the fixed expiry date for the temporary exemption in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, so that entities would be required to apply IFRS 9 for annual periods beginning on or after 1 January 2023.
  • Additional scope exclusion for credit card contracts and similar contracts that provide insurance coverage as well as optional scope exclusion for loan contracts that transfer significant insurance risk.
  • Recognition of insurance acquisition cash flows relating to expected contract renewals, including transition provisions and guidance for insurance acquisition cash flows recognised in a business acquired in a business combination.
  • Clarification of the application of IFRS 17 in interim financial statements allowing an accounting policy choice at a reporting entity level.
  • Clarification of the application of contractual service margin (CSM) attributable to investment-return service and investment-related service and changes to the corresponding disclosure requirements.
  • Extension of the risk mitigation option to include reinsurance contracts held and non-financial derivatives.
  • Amendments to require an entity that at initial recognition recognises losses on onerous insurance contracts issued to also recognise a gain on reinsurance contracts held.
  • Simplified presentation of insurance contracts in the statement of financial position so that entities would present insurance contract assets and liabilities in the statement of financial position determined using portfolios of insurance contracts rather than groups of insurance contracts.
  • Additional transition relief for business combinations and additional transition relief for the date of application of the risk mitigation option and the use of the fair value transition approach.
  • Several small amendments regarding minor application issues.

Although the IASB had in its discussions leading up to the exposure draft voted unanimously to leave the annual cohort requirement in IFRS 17 unchanged and did not ask a question on it in the draft, some respondents commented on the IASB’s decision to retain the requirements unchanged. The IASB, therefore, included in its deliberations the question of annual cohorts in February 2020 once more. However, it came to the same conclusion as before and decided to retain, unchanged, the annual cohort requirement in IFRS 17.

 

Effective date and transition

The amendments to IFRS 17 are effective for annual periods beginning on or after 1 January 2023. Earlier application is permitted. They are applied retrospectively.

Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4) defers the fixed expiry date of the amendment to annual periods beginning on or after 1 January 2023. 

 

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