IASB Board votes in favour of a one-year delay of IFRS 17.pdf
PwC summary of IASB meeting in which the Board agreed to start the process to amend IFRS 17 to defer the mandatory effective date of IFRS 17 by one year:
PWC- In transition – the latest on IFRS 17 implementation – Nov 2018.pdf
EY Insurance Accounting Alert
IASB AGREES TO DEFER IFRS 17 TO 2022
At a Board meeting on Wednesday 14th of November, the IASB tentatively decided to propose an amendment of the IFRS 17 effective date to reporting periods beginning on or after 1 January 2022.
This is a deferral of 1 year compared to the current date of 1 January 2021.
The Board also decided to propose an amendment to IFRS 4 to allow insurers qualifying for deferral of IFRS 9 one additional year of deferral. This would mean that qualifying insurers could apply both standards for the first time
to reporting periods beginning on or after 1 January 2022.
One year delay to the implementation date of IFRS 17
The Board’s decision to delay implementation of IFRS 17, and the length of the delay, reflected a need to balance a number of factors in favour and against delaying implementation of the Standard.
The staff paper prepared for the meeting set out some of the arguments of stakeholders for and against a delay to the effective date:
| Reasons in favour of a delay | Reasons against a delay |
| · Insurers and some regulators say they need more time to prepare for IFRS 17 than originally expected.
· Limitations in the availability of resources, such as actuaries and IT systems providers, can impede progress, reduce the quality of solutions possible in a limited timeframe and increase implementation costs. · Insufficient lead time for some stakeholders to inform and prepare investors, analysts and other users of financial statements. · Other factors outside the control of insurers relating to resources, education, impacts on regulation and taxation might not be resolved before 1 January 2021. · Potential delays to the European Union endorsement process might mean that entities around the world will not initially apply IFRS 17 at the same time. · The IASB is expected to begin exploring possible amendments to IFRS 17 at its December 2018 meeting. The process of developing changes to the Standard, exposure to public comment and re-deliberation by the Board could take at least a year. |
· The IASB was aware that IFRS 17 would be complex to apply, and allowed a period of approximately three and a half years from publication of the Standard to its effective date.
· IFRS 4 is inferior to IFRS 17, and a delay means that insurance entity reporting will continue to reflect the inadequacies and diversity of existing accounting practices. · A delay may appear to penalise insurers that expect to be ready for 2021, and reward those that have been slower to implement. · A delay – particularly a delay of more than a year could disrupt implementation processes already under way, cause a de-prioritisation or removal of resources from implementation projects and increase costs. · The IASB’s criteria for assessing possible amendments to the Standard restrict those that could cause undue delays to the effective date. |
Several Board members said they were not convinced by many of these arguments in favour of a delay, but they think that, also being pragmatic, a delay of a year is necessary because of uncertainty
arising from the Board’s decision to explore potential changes to the Standard. Many Board members also added that it was most useful to stakeholders if a decision on a delay to implementing IFRS 17 is made sooner rather than later.
All Board members voted in favour of proposing a one year deferral of IFRS 17.
Extending the temporary deferral of IFRS 9
IFRS 4 as amended in September 2016 permits entities whose predominant activities are connected with insurance to defer the application of IFRS 9 until 2021.
The Board considered whether to extend the temporary exemption from applying IFRS 9 to enable insurers to apply IFRS 9 and IFRS 17 together for the first time in 2022. The temporary exemption was provided in 2016 in order to
avoid additional accounting mismatches and volatility in profit or loss that may arise when IFRS 9 is applied in conjunction with IFRS 4, and to avoid the additional costs of applying IFRS 9 in advance of IFRS 17. The IASB set a fixed expiry date
to the temporary exemption, rather than linking it to the effective date of IFRS 17, because of need to limit the deferral of IFRS 9 compared with all other IFRS financial reporters to a short period of time.
In deciding to defer the effective date of IFRS 9 by another year the Board balanced the need for insurers to apply IFRS 9 as soon as possible in order to gain the benefits of IFRS 9 – particularly providing expected credit loss information
and to provide comparability between insurers and other investors, with the additional cost to preparers and complexity for users of financial statements that application of IFRS 9 before IFRS 17 could introduce.
One Board member noted that many insurers plan to implement both standards together, and separating their effective dates could interfere with their implementation plans.
The Board members decided by 13 votes to 1 to propose a one year additional deferral of IFRS 9. Several Board members noted that it was only because this deferral was limited to one additional year that they felt comfortable agreeing.
How we see it
► It is interesting that the IASB decided on deferral before concluding on the extent and nature of other changes to IFRS 17 yet to be deliberated. Board members noted that stakeholders requested that a decision to delay be made
as soon as possible so as not to disrupt ‘in-flight’ implementation projects too much and to have certainty in their planning and budgeting processes. The decision to delay by only one year is a further signal that the Board is not planning to
make large-scale changes to the standard in the coming months.
► Most insurers will welcome the extra year to prepare for implementing IFRS 17. Not only will this give them more time to plan and implement a well-controlled and robust process, but it should also provide additional time for analysis and
understanding of results, and preparation of analysts and other stakeholders.
► How preparers will ultimately view, and respond to, the delay will take into account the current status of their IFRS 17 preparations. Now may be a suitable time for them to take stock of project plans. Options could include:
o Keep going in accordance with current plans. This is only a 1 year delay which may allow preparers the time to complete work that otherwise would not have been possible, and without losing momentum and buy in.
o Re-phase activities, for example an extra year may allow more time for build and for proper dry runs, give more scope to use more internal resources.
o Slow down or pause the project? This option could be risky in terms of losing momentum and duplication of costs, given there is only a 1 year delay but may be the approach taken by companies who are particularly resource constrained or
distracted by other important projects.
► Many insurers will also welcome the Board’s decision to extend the temporary exemption to applying IFRS 9 by one year because this will allow them to keep the implementation dates of both standards aligned.
► The next few months will be very important as the IASB considers what other amendments it will agree to make to the standard. If these result in additional implementation activities for insurers, it may reduce some of the benefit of this proposed one-year delay.
► It will be important to see how regulators of jurisdictions using IFRS reporting respond to this announcement – and whether they will also follow the IASB with a delay of the effective dates of one year.
Next Steps
The next Board meeting will be held in December and is expected to begin consideration of potential changes to the Standard.
Look out for our forthcoming ‘Insurance Accounting Alert’ publication, which will provide more detail about the discussions during today’s IASB meeting.