FRC consults on draft feedback on IFRS 17 pre-release amendments
19 Aug 2019
The Financial Reporting Council (FRC) has released a draft of its proposed responses to IASB’s pre-implementation consultation on complex amendments to IFRS 17 Insurance Contracts even before the standard has been released
19 Aug 2019
There have been concerns about the application of the new insurance standard due to the divergence of accounting treatments for insurance contracts, with individual jurisdictions taking a localised approach and a lack of global rules and practice.
The complexity of the proposed accounting standard has meant that it has already been deferred for a year until 2021 and the International Accounting Standards Board (IASB) has issued Exposure Draft ED/2019/4 Amendments to IFRS 17 (ED), which is a pre-release consultation, in an effort to improve the standard and reduce overall complexity.
The UK standard setter has set out its responses to the consultation and is calling on key stakeholders to review the initial staff draft of its response, although it stressed that it ‘was not ask[ing] questions on the proposals or the staff draft, but would welcome stakeholders’ views to inform the FRC’s final response to the IASB’s ED’.
In its draft response, the FRC stated: ‘We agree with the majority of the proposals in this ED. Where we believe a proposed solution could be improved, we have suggested alternatives.
‘We have concerns with the proposal that addresses accounting mismatches between reinsurance contracts held and onerous underlying insurance contracts. We recommend considering an alternative approach that in our view would better reflect the economics of the transactions.’
On stakeholders’ concerns regarding the annual cohort requirements and the IASB’s arguments for deciding against a change, FRC said that there were ‘practical challenges of implementing the annual cohort requirement, especially for contracts that share risk. For these types of insurance products, the allocation of cash flows between the groups could be judgmental and may not necessarily be representative of how the contracts are managed’.
The FRC said that it was not opposed to an alternative solution but warned that ‘proposals that define the scope along the lines of paragraph 67 of IFRS 17 are not sufficiently specific to clearly define any exception to the use of annual cohorts’.
As the new standard will not come into force until 2022 at the earliest, the FRC gave a caveat to state that any work completed prior to the creation of the new UK standard setter, the Auditing, Reporting and Governance Authority (ARGA), which will replace the FRC later this year, would be passed on to the new regulator. The FRC said that ‘although the new body will not be bound by this draft or any final response to the ED by the FRC. However, any input we receive from constituents will be made available for consideration by the new body’.
In the run-up to Brexit, the Department for Business, Energy and Industrial Strategy (BEIS) is in the process of setting up a new, independent body to adopt and endorse International Accounting Standards for use in the UK.
The FRC will be holding a roundtable event on 5 September to discuss the proposals in the ED and the FRC’s response.
The feedback period closes 5 September 2019.
Sara White | 19-08-2019