The International Financial Reporting Standards (IFRS 17) Project Manager at AIICO Insurance Plc, Mr. Mayowa Korode has revealed why IFRS 17 was developed.
He said the IFRS 17 was developed “To bring consistency to financial reporting around the globe for companies reporting under IFRS 17, and to compare insurance companies to those operating in other sectors of economy.”
Korode maintained that AIICO Insurance is fully ready for the implementation, adding that the Company’s first and second quarters 2023 reports were done in IFRS 17 model.
Speaking at the annual training for members of the Nigerian Association of Insurance and Pension Editors (NAIPE) sponsored by AIICO Insurance in Lagos, Mr. Korode noted that the most fundamental element of change that IFRS 17 brings is the “closer alignment of the accounting to the underlying economics of insurance.”
He said AIICO Insurance as a Company is ready for full implementation of the new standard.
IFRS 17 is a comprehensive standard to account for insurance contracts applicable to companies that prepare financial statements under IFRS. It replaces IFRS 4, which was not a comprehensive standard. The new standard provides a single global accounting standard for insurance contracts,
Explaining the existing iissue in IFRS 4 and how IFRS 17 addresses the problem, he said IFRS 4 has a variety of treatments depending on type of contract and company; estimates for long-duration contracts not updated; discount rate based on estimates does not reflect economic risks; lack of discounting for measurement of some contracts and little information on economic value of embedded options and guarantees.
Whereas, according him, IFRS 17 provides consistent accounting for all insurance contracts by all companies; estimates updated to reflect current market-based information; discount rate reflects characteristics of the cash flows of the contract; measurement of insurance contract reflects time value where significant and measurement reflects information about full range of possible outcomes.
The Balance Sheet in IFRS 17, he noted, requires a current measurement model, where estimates are re-measured in each reporting period.
The measurement, according to him, is based on the building blocks of discounted, probability-weighted cash flows, a risk adjustment, and a contractual service margin (‘CSM’) representing the unearned profit of the contract.
For Income Statement, requirements in IFRS 17 align the presentation of revenue with other industries. Investment components are excluded from revenue.
Under IFRS 17, entities have an accounting policy choice to recognize the impact of changes in discount rates in profit or loss or in other comprehensive income (‘OCI’) to reduce some volatility in profit or loss.
On Disclosures, he said, IFRS 17 disclosures will be more detailed than required under current reporting frameworks; disclosures will provide additional insight into key judgements and profit emergence, adding that disclosures are designed to allow greater comparability across entities.