The standard setter has deferred the effective date for International Financial Reporting Standard (IFRS) 17 – Insurance Contracts – to annual periods beginning on or after 1 January 2022
This, the International Accounting Standards Board (IASB) said, was so that any amendments being explored would not disrupt its implementation.
“Together with the significant change that IFRS 17 will cause, this constitutes exceptional circumstances that justify the deferral,” the IASB said. Fourteen board members voted for the change.
IASB also chose to defer the expiry date for the temporary exemption to IFRS 9 in IFRS 4 by a year. All insurance entities must apply IFRS 9 for annual periods on or after 1 January 2022.
This more contentious deferral – which would mean some entities not applying the standard up to four years after all other entities – gained 13 votes.
IASB said, “Without the deferral there would be two sets of major accounting changes in a short period of time, resulting in significant cost and effort of the preparers of financial statements”.
Philippa Kelly, head of Financial Services at ICAEW, said, “Additional time will allow insurers and those working with insurers the time needed to ensure they have the technology required to effectively implement the standard available and in place.”
She said that insurance companies should make good use of the additional time to deliver on high quality implementation.
Alex Bertolotti, IFRS 17 leader at PwC said that some insurers have been lobbying for this for some time and others have been requesting clarification due to the costs of moving ahead.
He noted that the full impact of deferral “can only be fully assessed after reviewing potential changes to the standard which the IASB board will consider in December”.
“The additional time will help alleviate some risk from existing plans, however many companies still have a lot to do and cannot afford to press pause,” Bertolotti said.
“To stand still is to fall behind”, he added.
Francesco Nagari, global IFRS insurance leader at Deloitte, described the IFRS 17 deferral as a “parallel shift of the deferral in IFRS 9 mandatory adoption” that insurers will largely welcome.
A recent survey from the Big Four firm found that 90% of insurers were either “somewhat” or “very” confident at meeting the previous 2021 deadline, but there have still been recent calls to delay, he said.
“Substantial effort is already underway to implement the standards, with budgets in some instances expected to exceed €50m (£43.4m),” said Nagari.
While investors and regulators are eager for what IFRS 17 will bring, the additional time will allow for insurers to prepare, which Nagari said is a “reasonable compromise between the two stakeholder groups”.
The IASB said that the proposed deferral will be subject to public consultation, which is expected next year, and the board expects to discuss the merits of potential amendments during its December meeting.