EFRAG is consulting on both its assessment of IFRS 17 against the technical criteria in the EU and on its assessment of whether IFRS 17 is conducive to the European public good. Comments are requested by 29 January 2021.
EFRAG has issued its draft endorsement advice letter and a separate invitation to comment relating to the endorsement for use in the EU of IFRS 17 Insurance Contracts as resulting from the June 2020 Amendments (‘IFRS 17’ or ‘the Standard’).
EFRAG’s draft endorsement advice package consists of the following:
- Cover Letter;
- Appendix I (description of the requirements in IFRS 17);
- Appendix II (DEA assessment and conclusion about the qualitative technical characteristics of all the other requirements in IFRS 17 – apart from the requirement covered in Annex 1);
- Appendix III (DEA assessment and conclusion about European Public Good on all the other requirements in IFRS 17 – apart from the requirement covered in Annex 1); and
- Annex 1 (observations about the use of annual cohorts to intergenerationally mutualised and cash-flow matched contracts that are relevant for the DEA assessment of topics usually presented in Appendices II and III).
EFRAG’s overall preliminary assessment is reported below:
- The EFRAG Board has concluded on a consensus basis that, apart from the requirement to apply annual cohorts to intergenerationally-mutualised and cash-flow matched contracts, all the other requirements of IFRS 17, on balance (i) meet the qualitative characteristics of relevance, reliability, comparability and understandability required to support economic decisions and the assessment of stewardship, raise no issues regarding prudent accounting, and that they are not contrary to the true and fair view principle; and (ii) are conducive to the European public good;
- Solely with reference to the requirement to apply annual cohorts to intergenerationally-mutualised and cash-flow matched contracts, EFRAG Board members do not have a consensus. Nine EFRAG Board members believe that the annual cohorts requirement meets the above endorsement criteria, whereas seven EFRAG Board members believe it does not.
The draft endorsement advice provides preliminary conclusions on a number of specific issues that the European Commission and/or the European Parliament considered in their request for endorsement of IFRS 17.
EFRAG is seeking comments on all aspects of its analyses supporting its preliminary conclusions.
Joint CFOF / IE comment letter on EFRAG IFRS 17 DEA
ESMA response (29.02.2021)
ESMA has published its response to the EFRAG consultation on its draft advice on the endorsement into European law of the new international accounting standards for insurance contracts (IFRS 17).
In particular through this letter, ESMA:
- Confirms its support for the endorsement of IFRS 17 which will provide a consistent system of requirements to account for insurance and reinsurance contracts.
- Indicates that a key role in promoting greater transparency and consistency in accounting for insurance contracts in accordance with IFRS 17 is played by the principles for the aggregation of contracts that form an integral part of the new measurement model and Recommends that EFRAG considers these aspects of when finalising its advice.
- On annual cohorts, ESMA recognises that the issue has raised significant concerns by some stakeholders, but that the alternatives proposed cannot be considered to be more effective and efficient than the annual cohort requirement.
- Notes that IFRS 17 is a very detailed standard which reflects the complexity of the underlying insurance and reinsurance business which results in the extensive application of professional judgement and expects that the accompanying disclosures will have an essential role in providing the necessary complementary information on how management has exercised this judgement.
The response builds on previous ESMA public positions in relation to IFRS 17, particularly its September 2019 response to EFRAG’s consultation on its draft comment letter on the International Accounting Standards Board’s Exposure Draft Amendments to IFRS 17.