Earlier this week the International Accounting Standards Board issued the new Accounting Standard IFRS 17 Insurance Contracts, which will become effective on 1 January 2021.
IFRS 17 will unify accounting treatment for global insurers, and in doing so will affect how Australian insurers report profitability and their financial position.
KPMG’s Asia-Pacific insurance accounting leader, Scott Guse, told Accountants Daily that while the standard will help achieve consistency worldwide, Australian insurers will in fact be given more choices in their reporting than they do currently.
“While the whole purpose of the standard was to get consistency and compatibility across insurance companies, it’s actually kind of allowed more choices which will permit certain companies to report differently to other companies,” Mr Guse told Accountants Daily.
“Its main arching purpose was to harmonise insurance around the globe, and it has harmonised all the Europeans, the Canadians and the Australians to the one platform which is a lot more consistent than what we currently have now with disparate practices around the globe. So it’s unifying in that respect, but it is giving Australians more choices than what we’ve had in the past.”
Mr Guse said that the extra choices will potentially increase insurers’ profit and loss volatility.
“The extra volatility in insurers’ profit and loss accounts will primarily arise through the ‘choices’ allowed in the new standard when remeasuring claim liabilities and also the choices an insurer makes in recording valuation gains or losses on their investment portfolios,” Mr Guse said.
“Some of these remeasurements, gains or losses may now go through OCI instead of through profit and loss as is the current practice in Australia.”
In the lead up to 1 Janruary 2021, Mr Guse said accountants working in the insurance space need to get across the new standard and assess their options.
“If you’re an accountant in the life insurance space, a lot of change is on the horizon in the next three years in preparation for the application of this new standard.”