IFRS 17—The Time Is Now
Insurance companies around the world have less than three months before IFRS 17, the new standard for insurance contracts promulgated by the International Accounting Standards Board (IASB), becomes effective. This reporting standard was issued in 2017 after more than a decade of development time and will become mandatory for annual reporting periods beginning on or after January 1, 2023. It applies to any organization that issues insurance and/or reinsurance contracts—not just to licensed insurance and/or reinsurance companies. It affects all listed insurers in Europe as well as all insurance companies in several jurisdictions with IFRS as a mandatory insurance accounting regime (e.g., Australia, Canada, South Korea, Spain, many countries in central Eastern Europe, the Middle East, Africa, the Caribbean etc.).
For insurers, applying IFRS 17 will result in major changes to their financial statements and key performance indicators, such as replacing the familiar major income position “Gross Written Premiums” with “Insurance Revenue.”
To read the the complete article, please follow the link: https://contingencies.org/ifrs-17-the-time-is-now/
IFRS 17 insurance standard on the home straight
Michael Winkler, actuary and Sunil Kansal FCA, head of consulting at Shasat Consulting highlight some of the key financial reporting changes as a result of the transition to IFRS 17 Insurance Contracts
Insurance Companies around the world have less than six months before IFRS 17, the new standard for insurance contracts, becomes effective. This reporting standard was issued in 2017 after more than a decade of development time and will become mandatory for annual reporting periods beginning on or after 1 January 2023.
It applies to any organisation that issues insurance and/or reinsurance contracts – not just to licensed insurance and/or reinsurance companies. It affects all listed insurers in Europe as well as all insurance companies in several jurisdictions with IFRS as a mandatory insurance accounting regime (eg.,Australia, Canada, South Korea, Spain, many countries in Central Eastern Europe, the Middle East, Africa, the Caribbean, etc).
For insurers, applying IFRS 17 will result in major changes to their financial statements and key performance indicators, such as replacing the familiar major income position ‘gross written premiums’ with ‘insurance revenue’.
New presentation
Presentation, however, is only a more minor part of the changes which aim to make the financial statements more transparent and more comparable to other insurance companies and, wherever applicable, to other industries.
For the latter, investment components represent an important part of the insurance premiums, particularly in life insurance products. The investment components of the premiums should no longer be part of the turnover; in line with bank revenues not containing any deposits.
Insurers will also have to get used to the familiar ‘insurance claims payments’ now being represented as ‘insurance service expenses’. Claims payments are indeed the most important service an insurance company provides to its customers.
New measurement; volatility
The more fundamental changes affect the measurement of future services (previously termed as ‘reserves’. Many insurance accounting regimes have tried to stabilise their financial statements over the years; therefore, they calculated their reserves based on historic information: locked-in assumptions for insurance parameters as well as historic interest rates.
The latter, however, is not in line with the use of market values for the asset side of the balance sheet which is now perceived as the only fair-value representation for the different stakeholders. Therefore, the measurement of the liabilities in IFRS 17 will always be based on current assumptions.
Due to the compound effect over many projected years, the regular update of assumptions (particularly interest rate or discounting assumptions) can make long-term liabilities much more volatile.
IFRS 17 is introducing two different buffers to dampen result volatility:
• the risk adjustment for actual versus expected claims and expense fluctuations; and
• the contractual service margin (CSM) for changes in actuarial assumptions. However, the CSM is only introduced for the liability for remaining coverage. For the liability for incurred claims, any changes of assumptions flow directly through the profit and loss statement.
For direct participating businesses (with-profit products and unit-linked businesses), the contractual service margin is also supposed to absorb changes in the so-called ‘variable fee’, ie, the shareholders’ part of the corresponding investment returns. Changes in discount rates, however, flow either through the profit and loss statement or through other comprehensive income (OCI) directly into the equity.
Choices for the companies
If in a stable interest rate environment, everything runs as expected, the results are entirely driven by the releases of risk adjustment and contractual service margin; therefore, these two items will shape the profit pattern for any long-term insurance business.
IFRS 17 does not provide an explicit definition for the two items (‘risk adjustment’ and ‘contractual service margin’), but only some high-level principles; therefore, companies must make a choice which hopefully is based on a thorough quantitative analysis of the earnings patterns stemming from the different options.
Other important choices refer to the starting balance sheet (‘financial position’) at the introduction of IFRS 17 – particularly the contractual service margin at the transition date (all other items are calculated according to the IFRS 17 principles, based on prospective cash flows).
Ideally, IFRS 17 could be applied retroactively for a given group of contracts for all years from inception to the transition date. However, in many cases, this is practicable only for cohorts starting in the most recent years when all requirements of the new standard have been known.
Otherwise, companies can choose to apply some simplifications (modified retrospective approach) or derive the contractual service margin from the fair value (‘market price’) for a given block of business. If a company chooses the fair-value approach, they probably want to achieve a maximum contractual service margin, which will be released as profits over the remaining life of the portfolio.
Multi-currency groups of insurance contracts
The pace of critical questions from the insurance industry has not slowed down. Consequently, we may expect to see more amendments to IFRS 17 in the near future. The latest issue that the International Accounting Standards Board’s (IASB) technical committee had to consider was how to account for insurance contracts that generate cash flows in more than one currency.
The question was whether an entity considers currency exchange rate risks when applying IFRS 17 to identify portfolios of insurance contracts and how an entity applies IAS 21 Effects of Changes in Foreign Exchange Rates to more than one currency? IFRS 17 defines financial risk and insurance risk (a non-financial risk).
As per the definition in IFRS 17, the financial risk also includes currency exchange rate. The requirements in both IFRS 17 and IAS 21 refer to transactions or items that are denominated or require settlement in a single currency. It would create a tricky issue for insurers measuring a group of insurance contracts which are in multi-currency.
Priorities in the last phase
For many companies, IFRS 17 has mainly been an ambitious IT project so far: data storage and maintenance are indeed playing a crucial role in the implementation of the new standard. However, given the principle-based nature, there are a lot of choices which have a major impact on the future results of the companies. These choices must be made based on a thorough quantitative analysis; if they have not been finalised yet, now is the very last chance to get it right!
About the authors
Michael Winkler, actuary and Sunil Kansal FCA, head of consulting at Shasat Consulting
Shasat introduces a portfolio of professional certifications and skill development courses in partnership with Becker Professional Education
Shasat, a global leader in professional training, announced today the launch of its CPA Exam Review, CMA Exam Review and CPE (Continued Professional Education) programs in partnership with Becker Professional Education, a leader in providing customized personalized learning experiences and AI-driven platforms, and strategic partner to the Institute of Management Accountants (IMA). Building on its 16-year history, track record and proven methodology in training professionals worldwide through a range of highly technical courses (e.g. IFRS and US GAAP courses) and also continuing education, Shasat’s introduction of Becker’s program to its portfolio is a further step in its commitment to providing only leading courseware and furthering professional development across Europe.
Mr Sunil Kansal, managing director of Shasat, believes the “association with Becker would allow Shasat to broaden its existing range of professional courses and allow professionals to take advantage of our world-class online and in-person programs. The pandemic has redefined the future of professional learning – a hybrid environment that embraces live in-person learning as well as on-demand online professional courses. Shasat is delighted to join hands with Becker to offer world-class professional programs to corporates and individuals all across Europe.” “Leveraging best in class pedagogy and learning methodologies, coupled with ever-evolving technology capabilities, Becker continues to be one of the go-to choices for accounting and finance professionals seeking to enhance their accounting expertise – be it with globally valued professional certifications such as CPA and CMA, as well as ever broadening skill development courses for continued professional education. We are delighted to enter this partnership with Shasat. Shasat’s reputation for uncompromising quality and service in the FA learning space will allow us both to bring a range of skills and knowledge enhancing offerings to a wider base of professionals, organisations and students across several regions internationally” said Aziz Tayyebi, Director, International for Becker Professional Education.
Shasat and Becker’s signature exam preparation and continued professional education offerings will provide professionals with a comprehensive set of industry leading products, utilizing adaptive technology and industry-leading subject matter experts, tools and resources through:
- Quality content, including textbooks, multiple-choice and essay questions, videos, practice tests and simulated exams that capture the feeling and pace of the exam itself.
- An intuitive user experience. Based on Becker’s proven CPA preparation software platform, the new format provides an organized learning experience with streamlined, easy-to-use navigation.
- Industry-leading instruction with teachers who have decades of experience translating classroom learning into real-life applications.
- Personalized learning, utilizing Technology. The AI-driven platform continuously assesses the knowledge, helping to focus on areas where the most help is needed.
About Shasat
Shasat is a UK headquartered training organisation that offers over 300 public and 150 in-house training courses every year in more than 70 cities worldwide in six different languages covering a wide range of highly technical topics such as IFRS, USGAAP, IPSAS, Risk Management, Insurance, Regulatory Update, Anti-Money Laundering, and several other professional development programs to businesses and individuals. Shasat has trained professionals from large financial and non-financial institutions, oil and gas companies, public sector organisations, large audit firms, and government departments, making our faculty one of the most experienced and knowledgeable professional faculties. We are proud to work together with our world-renowned partners.
For more information about Shasat, visit www.shasat.com
About Becker Professional Education
Professionals and students around the world count on Becker for the industry-leading tools and support they need to excel. And it all comes down to one thing: results. Results rooted in a tireless commitment to the success of our students. Crafting personalized learning experiences. Unleashing cutting-edge technologies. Relentlessly advocating for the industry. And simply doing whatever it takes. That’s why more than 2,900 of the top accounting firms, corporations, alliances, government agencies and universities chose Becker for CPA Exam prep, CMA Exam prep and Continuing Professional Education. Becker provides CPA Exam Review, CMA Exam Review and Continued Professional Education with expert instructors, high-quality content, flexible learning formats including on-demand resources and webcasts.
IASB amends work plan and proposes amendment to IFRS 16
IASB amends work plan and proposes amendment to IFRS 16.
The International Accounting Standards Board (Board) has decided to propose an amendment to the leases Standard, IFRS 16, to help companies account for covid-19-related rent concessions, such as rent holidays.
The proposed amendment will complement the educational materials published on 10 April 2020 to support companies applying the Standard. A project has been added to the Board’s work plan on the proposed amendment. Those with an interest can follow developments in the project by registering for alerts. The Board expects to publish the proposed amendment in an exposure draft next week with a 14-day comment period. The IFRS Foundation Trustees, responsible for governance and oversight of the Board, approved the 14-day comment period. The Due Process Handbook sets out that 75% of the Trustees must approve comment periods shorter than 30 days.
For more information: https://www.ifrs.org/news-and-events/2020/04/iasb-amends-work-plan-and-proposes-amendment-to-ifrs-16/
IBOR Transition – A more in-depth look
A detailed research paper written by Sunil Kansal and Ganesh Melatur to probe the fundamental reasons which led to the discontinuation of #IBORs and establish new #RFRs.
https://linkedin.com/pulse/ibor-transition-more-in-depth-look-sk-kansal…
FRS 102 Masterclass Workshop
Shasat has launched its #FRS102/105 Master class workshops to provide professionals with the detailed knowledge and understanding of the requirements and pitfalls when applying FRS 102. The training will address the core sections of the standard, providing attendees with greater confidence when dealing with accounting and reporting matters, and will ensure you are up to date by incorporating the latest developments to the standard. During the two days we will also review the simplified framework allowed by FRS 105, and will consider the legal requirement that it imposes on Directors to ensure that the financial statements show a true and fair view by adding additional disclosures where necessary.
FRS 102 replaced the former UK GAAP in 2015 and is loosely based on the IFRS for SMEs, with some adjustments to manage conflicts with the Companies Act. Small entities may follow the guidance in Section 1A of the standard, allowing them to simplify the standard presentation and disclosure requirements, whereas micro-entities may apply FRS 105, a separate framework Whilst FRS 102 framework has become embedded into financial reporting for many entities, some errors and misunderstandings still exist. The Institute of Chartered Accountants in its Audit Monitoring Report identified that more work was needed throughout the profession to keep abreast of developments in UK GAAP guidance, and aware of its interpretation since its issue.
Following are the upcoming workshops:
GID 37001 – FRS 102 Master Class Workshop (2 Days): 10-11 September 2020 @ London
GID 37002 – FRS 102 Master Class Workshop (2 Days): 1-2 June 2020 @ Glasgow
GID 37003 – FRS 102 Master Class Workshop (2 Days): 2-3 November 2020 @ London
IFRS Masterclass Program (12 Days) launched by Shasat
IFRS Masterclass Program (12 Days)
Shasat has launched its new IFRS Master Class Program to provide a detailed and in-depth IFRS learning opportunity to the finance professionals.
Shasat has trained over 20000 professionals worldwide and based on feedback received from the participants, it was suggested that more time is required to complete all the accounting standards in a program, therefore, we have specially designed this 12-day program to provide detailed learning of the International Financial Reporting Standards. We have created this instructor-led a complete IFRS learning program (12 days) to professionals all over the world in different cities to meet their demands and expectations. Our lecture sessions are supplemented by problem-solving and case discussion to strengthen and reinforce your understanding of the topics.
On completion of the Diploma candidates should be able to:
- Recognize the underlying concepts and principles of IFRS.
- In-depth understanding of the fundamental principles of IFRS
- Key IFRS definitions and concepts
- Application of relevant financial reporting standards to key elements of financial reports
- Disclosure requirements for companies in financial reports and notes
- Preparation of group financial statements including subsidiaries, associates and joint arrangements.
- Identify and calculate tax amounts to be recognized in the financial statements.
- The accounting requirements applicable to entities that transact in or keep accounting records in foreign currency.
- Indicate how to measure fair value when required by IFRS standards.
This program shall offer
- A single registration in this program would allow a company to send up to 5 participants.
- Each participant shall receive the course material for self-learning.
- 90 Hours of CPD Certification.
- Chrome Book
- IASB publications on IFRS
- Course Certificate, Group photograph and Farewell Dinner
- Lunch and refreshment during the course.
To look at the schedule of the IFRS Master Class programs, follow the link below:
https://www.shasat.co.uk/product-category/ifrs-master-class-ifrs-immersion-workshop-12-days/
Q&A 35.1 on transition to the IFRS for SMEs Standard published
The IFRS Foundation has published Q&A 35.1 providing guidance on the application of the #IFRS for SMEs Standard. Developed by the #SME Implementation Group (#SMEIG), it responds to a question on the application of the undue cost or effort exemption when measuring an investment property at fair value on transition to the IFRS for SMEs Standard. In response to feedback on the draft Q&A published in August 2019, the Q&A addresses assets and liabilities for which the IFRS for SMEs Standard permits the application of the undue cost or effort exemption when estimating fair value on transition.
The Q&A concludes that the assessment of whether there is undue cost or effort is based on information about the costs and benefits at the date of transition. Additional cost or effort due to the elapse of time between the date of transition and the date of the first financial statements prepared applying the IFRS for SMEs Standard is not included in the assessment.
For more detail visit the following link:
https://www.ifrs.org/news-and-events/2020/03/q-and-a-on-transition-to-the-ifrs-for-smes-standard-published/
CFO Masterclass – Financial and Strategic Leadership Program
Shasat has launched its new program for the Chief Financial Officers (#CFOs) including aspiring CFOs. It has specially designed this 5-day executive program intending to equip the finance leaders with dynamic management and leadership techniques so that they can drive a change considering the strategic goals of their organisation. The financial leader in an organisation is traditionally considered as the guardian of the financial health of an entity, overseeing and implementing adequate financial control infrastructure but the world has changed and today they are also expected to participate in driving the organization toward achieving its objectives. The financial leaders are expected to build partnership across functions within an organisation and evolving from a transactional and cost efficiency focus to an increasingly value-adding strategic focus. This strategic leadership program shall help the participants to learn:
- Required strategic skills to drive the financial leadership
- How to align strategic understanding across functions.
- Strategic understanding of the finance functions/IFRS
- Five ‘Ps’ of Management and Financial strategies
- sharing strategic leadership responsibilities with the CEO
- Role of strategic planning, Negotiation and handling difficult situations
- Motivation, use of technology and change management
- Understand your style and how to transform through case studies
- Introduce a culture of Reward and Learning
- driving and managing change and innovation within the organization
Shasat has scheduled the following programs:
GID 33001-CFO Master Class – Financial and Strategic Leadership (5 Days): 11-15 May 2020 @ London
The IASB has decided that the effective date of the IFRS 17 will be deferred to 1 January 2023
The International Accounting Standards Board (Board) has completed its discussions on the amendments to #IFRS17 #Insurance #Contracts that were proposed for public consultation in June 2019. It has been decided that the effective date of the Standard will be deferred to annual reporting periods beginning on or after 1 January 2023. The Board also decided to extend the exemption currently in place for some insurers regarding the application of IFRS 9 Financial Instruments to enable them to implement both #IFRS 9 and IFRS 17 at the same time.
The Board has in previous meetings confirmed that it will proceed with the proposals outlined in the June 2019 consultation document albeit with some minor modifications in response to feedback received. The Board also added some additional amendments, again in response to feedback on those proposals.
Timely implementation of IFRS 17 is vital to improve the quality and comparability of accounting for insurance contracts. However, the Board’s decision to defer the effective date by two years from the original date to 2023 will enable insurers around the world to implement the new Standard at the same time, which the Board considers to be beneficial for investors, insurers and other stakeholders.
The Board expects to issue the amendments to IFRS 17 in the second quarter of 2020.
https://www.ifrs.org/news-and-events/2020/03/ifrs-17-effective-date/
https://www.shasat.co.uk/product-category/ifrs-17-and-actuarial-challenges-two-day-workshop/