IASB Article on Reducing Gap Between Insurance and Other Industries
Gary Kabureck of IASB published a feature that examines reducing the gap between insurance and other industries. For companies applying IFRS Standards, the accounting for insurance contracts differs significantly from the accounting for other contracts. The article outlines the similarities between the key requirements in IFRS 17 and those in other IFRS standards. These key requirements include the measurement of obligations at current value and the recognition of revenue as a company provides services to its customers.
IFRS 17 requires an insurer to report on the balance sheet its obligations from insurance contracts as the total of fulfillment cash flows and contractual service margin. The author points out that measurement of an insurer’s obligations at current value is consistent with the requirements in IAS 37 on provisions, contingent liabilities, and contingent assets for provisions and with those in IFRS 9 on financial instruments for financial liabilities. Recognition of profit at the time services—such as insurance coverage—are provided is consistent with IFRS 15 on revenue from contracts with customers. Insurance obligations can also be regarded as having two components: liability for remaining coverage—measurement of which is broadly consistent with IFRS 15; and liability for incurred claims—measurement of which is broadly consistent with IAS 37.
IFRS 17 requires insurers to present, in the income statement, the revenue for insurance services determined in a way that is consistent with the general principles in IFRS 15. IFRS 17, consistent with IFRS 15, requires that the balance sheet reports the insurance obligations and the income statement reports progress toward satisfying the performance obligation in the contracts. The obligations to repay deposits to the policyholder, if not included in an insurance contract, would be measured and presented in accordance with IFRS 9. When a deposit is interrelated with the obligation to provide insurance coverage it is measured in accordance with IFRS 17. However, it would not faithfully represent the similarities between financial instruments within the scope of IFRS 9 and deposits embedded in insurance contracts within the scope of IFRS 17 if an insurer were to present the receipts and repayments of such deposits as insurance revenue and incurred claims. Accordingly, the requirements in IFRS 17 exclude such deposits from insurance revenue and incurred claims.
Overall, the author believes that IFRS 17 on insurance contracts will help reduce the comparability gap between the accounting in the insurance industry and the accounting in other industries. The author believes that changes introduced by IFRS 17 will enable a wider range of users to understand insurers’ financial statements and compare them with the financial statements of companies within and outside the insurance industry. As with the revenue in any other industry, insurance revenue will exclude deposits and reflect only the services provided. Apart from facilitating cross-industry comparability, this change will make easier for non-specialist investors to understand insurers’ income statement.
Keywords: International, Insurance, Accounting, Banking, IFRS 17, IFRS 9, IFRS 15, IAS 37, Insurance Obligations, Presentation of Revenue, IASB
Related Articles
|
News
FSB to Evaluate Effects of Too-Big-To-Fail Reforms for Systemic BanksFSB is seeking feedback as part of its evaluation of the effects of the too-big-to-fail reforms for banks.
May 23, 2019
WebPage
Regulatory News
|
|
News
APRA Releases Minor Changes to Reporting Standards on SA-CCR for BanksAPRA released minor changes to the three reporting standards for the standardized approach for measuring counterparty credit risk exposures (SA-CCR).
May 22, 2019
WebPage
Regulatory News
|
|
News
APRA on Industry Self-Assessments into Governance and AccountabilityAPRA released an information paper analyzing the self-assessments performed by 36 of the country’s largest banks, insurers, and superannuation licensees in response to the final report on the Prudential Inquiry into the Commonwealth Bank of Australia (CBA).
May 22, 2019
WebPage
Regulatory News
|
|
News
PRA Consults on Maintenance of TMTP Under Solvency IIPRA published a consultation paper (CP11/19) that sets out its approach to update supervisory statement (SS6/16) on maintenance of the transitional measure on technical provisions (TMTP) under Solvency II.
May 22, 2019
WebPage
Regulatory News
|
|
News
APRA Proposes to Amend Guidance on Residential Mortgage LendingAPRA is consulting on revisions to the prudential practice guide APG 223 on residential mortgage lending in Australia.
May 21, 2019
WebPage
Regulatory News
|
|
News
IASB Proposes Improvements to IFRS 9 and IFRS 16IASB published the exposure draft ED 2019/2 that proposes amendments to four IFRS standards, including IFRS 9 on Financial Instruments and IFRS 16 on Leases.
May 21, 2019
WebPage
Regulatory News
|
|
News
Denis Beau of BDF on Supervisory Priorities for Climate-Change RisksDenis Beau, the First Deputy Governor of BDF, delivered opening remarks at the BCBS-BSCEE-FSI High-level Meeting for Europe on banking supervision.
May 21, 2019
WebPage
Regulatory News
|
|
News
ISDA CDM to be Deployed for UK Digital Regulatory Reporting PilotISDA announced deployment of the ISDA Common Domain Model (ISDA CDM 2.0) to support the UK FCA, BoE, and participating financial institutions in testing phase two of the Digital Regulatory Reporting pilot for derivatives.
May 21, 2019
WebPage
Regulatory News
|
|
News
MAS to Consolidate Regulation of Merchant Banks Under Banking ActMAS published a consultation paper that proposes to consolidate the regulation of merchant banks under the Banking Act and to move merchant banks to a licensing regime under the MAS Act.
May 21, 2019
WebPage
Regulatory News
|
|
News
ESAs Amend Technical Standards on Mapping of ECAIs Under CRRESAs published a second amendment to the implementing technical standards on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk under the Capital Requirements Regulation (CRR).
May 20, 2019
WebPage
Regulatory News
|
