IASB revised Exposure Draft marks major milestone toward global reporting consistency for insurers

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EY today welcomes the International Accounting Standards Board’s (IASB) revised exposure draft Insurance Contracts (the revised ED). The revised ED is part of the IASB’s ongoing insurance contracts project and another key step on the road to global consistency of financial reporting by insurance companies.

The Board has put much effort into addressing the issues raised around its previous proposals from July 2010, including major concerns for increased earnings volatility and changes in the presentation of the statement of comprehensive income. Furthermore, the IASB seems determined to complete this project considering today’s issues with the existing accounting standard on insurance contracts.

The revised ED has been developed through joint discussions with the Financial Accounting Standards Board (FASB). However, at this stage, there is no expectation that the two Boards ultimately will fully converge on their proposals, and the FASB will issue its own exposure draft shortly.

Implementation model brings broader focus on finance change agenda

David Foster, EY LLP (UK) Partner and Insurance Finance and Accounting Leader, comments: “The proposals aim to mitigate the potential for earnings volatility, bring consistency and a better understanding of how companies account for insurance contracts. However, these proposals also bring potentially significant operational challenges and introduce more complexity.”

Foster adds: “Companies will need to look at the proposed model for insurance liabilities in the context of the broader, shifting reporting landscape. When considered alongside other financial and regulatory reporting changes, and continuing economic and cost pressures, the challenge for finance functions in the coming years will be substantial. While the effective date of a final standard is unlikely to be before 2018, the work needed to prepare should not be underestimated.”

Grant Peters, EY Insurance Sector Leader for Oceania, said: “At a local level, the proposed standards are likely to have a greater impact for Australian life insurers, given the longer term nature of life insurance contracts.”

“The proposed standards highlight some changes to the measurement and recognition of liabilities on an insurer’s balance sheet, and this will ultimately impact how profit is recognised over the length of insurance contracts. Australian insurers will need to carefully consider how they plan to communicate these changes with key stakeholders, including investors.”

“While the likely implementation date of 2018 may still seem some time away, Australian insurers should start preparing now to ensure they are well positioned to meet the changes ahead. This is particularly important given the possibility of some of the reporting requirements being implemented retrospectively and if companies are required to disclose comparative figures prior to the implementation date.”

“This may be the last time insurers have an opportunity to comment on the proposals. Therefore insurance companies will need to understand the impact on financials and business operations to provide feedback to the IASB within the four month comment period.”

For more details about this major milestone, refer to our special insurance accounting alert which will be on: www.ey/insurance.com

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Contact details

Rebecca Aley
EY Australia
02 9276 9305 or 0418 835 849