International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 911
allocation approach (when discounting has been elected – see 9.4 above) at the
transition date instead of the date of the initial recognition or incurred claim; [IFRS 17.C23]
• If an entity chooses to disaggregate insurance finance income or expense between
profit or loss and other comprehensive income, it is permitted to determine the
cumulative amount of insurance finance income or expense recognised in other
comprehensive income at the transition date: [IFRS 17.C24]
• retrospectively, but only if it has reasonable and supportable information to
do so; or
• as nil, unless the below applies; and
• for insurance contracts with direct participation features where the entity
holds the underlying items, as equal to the cumulative amount recognised in
other comprehensive income from the underlying items.
Although there is the option above to set other comprehensive income at nil on
transition no equivalent option exists under transition in IFRS 9 for financial assets held
at fair value through other comprehensive income.
4610 Chapter 52
In May 2018, the TRG discussed the analysis in an IASB staff paper that considered
whether, when applying the fair value approach to transition, insurance acquisition
cash flows that occurred prior to the transition date are recognised as revenue and
expenses for reporting periods subsequent to the transition date. The TRG members
noted that:
• applying the fair value transition approach meant that the amount of insurance
acquisition cash flows included in the measurement of the contractual service
margin will only be the amount occurring after the transition date that is also
included in the fulfilment cash flows. When this approach to transition is applied
the entity is not required nor permitted to include in the measurement of the
contractual service margin any insurance acquisition cash flows occurring prior to
the date of transition;
• the fair value approach is intended to provide an entity with a ‘fresh start’ approach
to transition; and
• since insurance acquisition cash flows that occurred prior to the transition date are
not included in the measurement of the contractual service margin at the transition
date they are not included in the presentation of insurance revenue and expenses
for reporting periods subsequent to the transition date.
The IASB staff noted that this analysis applies in all situations that the fair value
transition approach is taken, irrespective of whether the entity can identify and measure
the insurance acquisition cash flows that applied prior to the transition date.47
17.5 Redesignation of financial assets – where IFRS 9 has previously
been applied
At the date of initial application of IFRS 17, an entity that had applied IFRS 9 to annual
reporting periods before the initial application of IFRS 17: [IFRS 17.C29]
• may reassess whether an eligible financial asset is held within a business model
whose objective is to hold financial assets in order to collect contractual cash flows
or is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets. A financial asset is eligible only if
the financial asset is held in respect of an activity that is connected with contracts
within the scope of IFRS 17. Examples of financial assets that would not be eligible
for reassessment are financial assets held in respect of banking activities or financial
assets held in respect of investment contracts that are outside the scope of IFRS 17;
• should revoke its designation of a financial asset measured at fair value through
profit or loss if the original designation was made to avoid or reduce an accounting
mismatch and that accounting mismatch no longer exists because of the application
of IFRS 17;
• may designate a financial asset as measured at fair value through profit or loss if in
doing so eliminates or significantly reduces an accounting mismatch that would
otherwise arise from measuring assets or liabilities or recognising the gains and
losses on them on different bases;
• may make an irrevocable election to designate an investment in an equity
instrument as at fair value through other comprehensive income provided that
Insurance contracts (IFRS 17) 4611
equity instrument is neither held for trading nor contingent consideration
recognised by an acquirer in a business combination to which IFRS 3 applies; and
• may revoke its previous designation of an investment in an equity instrument as at
fair value through other comprehensive income.
An entity should apply the above on the basis of the facts and circumstances that exist
at the date of initial application of IFRS 17. An entity should apply those designations
and classifications retrospectively. In doing so, the entity should apply the relevant
transition requirements in IFRS 9. The date of initial application for that purpose should
be deemed to be the date of initial application of IFRS 17. [IFRS 17.C30].
Any changes resulting from applying the above do not require the restatement of prior
periods. The entity may restate prior periods only if it is possible without the use of hindsight.
This therefore may result in a situation whereby the comparative period is restated for the
effect of IFRS 17 (which may include changes that affect financial instruments within the
scope of IFRS 9, for example accounting for investment components that are separated) but
not for consequential changes resulting to the classification of financial assets (this situation
will also potentially arise when an entity has not previously applied IFRS 9 – see 17.6 below).
If an entity does restate prior periods the restated financial statements must reflect all the
requirements of IFRS 9 for those affected financial assets. If an entity does not restate prior
periods, the entity should recognise, in the opening restated earnings (or other component of
equity, as appropriate) at the date of initial application, any difference between:
• the previous carrying amount of those financial assets; and
• the carrying amount of those financial assets at the date of initial application. [IFRS 17.C31].
Other disclosure requirements when redesignation of financial assets is applied are
as follows:
• the basis for determining financial assets eligible for redesignation;
• the measurement category and carrying amount of the affected financial assets
determined immediately before the date of initial application of IFRS 17;
• the new measurement category and carrying amount of the affected financial assets
determined after redesignation;
• the carrying amount of financial assets in the statement of financial position that
were previously designated as measured at fair value through profit or loss in order
to significantly reduce or avoid an accounting mismatch that are no longer so
designated; [IFRS 17.C32]
• qualitative information that would enable users of the financial statements to
understand: [IFRS 17.C33]
• how the entity applied the various options available for reassessment,
revocation and designation described above;
• the reasons for any designation or de-designation of financial assets measured
at fair value through profit or loss in order to significantly reduce or avoid an
accounting mismatch; and
• why the entity came to any different conclusion in the new assessments
applying the requirements of the business model test.
4612 Chapter 52
17.6 Entities that have not previously applied IFRS 9
Most entities meeting the eligibility criteria for the temporary exemption from IFRS 9
in IFRS 4 (see Chapter 51 at 10) are expected to elect to defer IFRS 9 until IFRS 17
becomes effective.
An entity that adopts IFRS 9 at the same time that it adopts IFRS 17 will be able to assess
financial asset classifications, elections and designations while, at the same time,
assessing the implications of the requirements of IFRS 17. An entity adopting IFRS 9 at
the same time that it adopts IFRS 17 will also be able to apply the various transitional
provisions of IFRS 9.
IFRS 17 requires any net differences resulting from its application to be recorded in net
equity at the date of transition (i.e. 1 January 2020 for an entity applying IFRS 17 for the
first time in its annual reporting period ending 31 December 2021). In contrast, IFRS 9’s
starting point is that the net differences resulting from its application are recorded in net
equity at the date of initial application (i.e. 1 January 2021 for an entity applying IFRS 9
for the first time in its annual reporting period ending 31 December 2021). Comparative
periods may only be restated if it is possible without the use of hindsight. [IFRS 9.7.2.15].
Some care may therefore be needed to explain the presentation of the comparative
results to users of the financial statements in the year of initial application of IFRS 17.
18 FUTURE
DEVELOPMENTS
In June 2018, the IASB tentatively decided to propose the following minor amendments
to IFRS 17 (and other standards amended by IFRS 17):
• to amend the terminology in paragraph 27 of IFRS 17 to include insurance
acquisition cash flows relating to insurance contracts in the group yet to be issued
(see 6 above);
• to amend the terminology in paragraph 28 of IFRS 17 (replacing ‘contracts issued’
with ‘contracts that meet the criteria for recognition...’) to achieve the intended
timing of recognition of contracts within a group;
• to remove requirements that could result in double-counting of the risk-
adjustment for non-financial risk in the insurance contracts reconciliation
disclosures and revenue analyses;
• to correct terminology (i.e. the inadvertent use of the term ‘risk exposure’ rather
than ‘risk variable’) in the sensitivity analysis disclosures;
• to exclude business combinations under common control from the scope of the
requirements for business combinations in IFRS 17 (see 13.2 above);
• to amend IFRS 3 so that the amendment made by IFRS 17 on the classification of
insurance contracts applies prospectively (see 13 above);
• to amend IFRS 7 and IAS 32 to achieve the intended interaction between the
scopes of these financial instruments Standards and the scope of IFRS 17,
particularly with respect to insurance contracts held (see 2.3.1.G above); and
• to add an explanation that, in Example 9 of the Illustrative Examples on IFRS 17,
the time value of the guarantee changes over time.
Insurance contracts (IFRS 17) 4613
In addition, the IASB tentatively decided to propose to clarify the definition of the
coverage period for insurance contracts with direct participation features. The
proposed amendment would clarify that the coverage period for such contracts includes
periods in which the entity provides investment-related services (see 11.2.3 above).
The IASB will propose these amendments in the next publication of annual
improvements to IFRS Standards. The timing of the proposed annual improvements will
depend on the identification of other matters for inclusion in the next publication.48
In addition, at the time of writing, the IASB is expected to have a discussion at its
October 2018 meeting, potentially not just about issues brought forward by the TRG but
also covering other requests from constituents.
References
1
Insurance contracts: Responding to the external
11 IASB staff Paper AP07, Transition Resource
editorial review, IASB staff paper 2C,
Group for IFRS 17 Insurance contracts;
February 2017, Issue A8.
reporting on other questions submitted, IASB,
2
Summary of the Transition Resource Group for
May 2018, Log S38.
IFRS 17 Insurance Contracts meeting held on 6
12 Summary of the Transition Resource Group for
February 2018, IASB, February 2018, pp. 1-4.
IFRS 17 Insurance Contracts meeting held on 2
3 IASB staff Paper AP07, Transition Resource
May 2018, IASB, May 2018, pp. 3-4.
Group for IFRS 17 Insurance contracts; 13 IASB staff Paper AP07, Transition Resource
reporting on other questions submitted, IASB,
Group for IFRS 17 Insurance contracts;
May 2018, Log S35.
reporting on other questions submitted, IASB,
4
Summary of the Transition Resource Group for
February 2018, Log S25.
IFRS 17 Insurance Contracts meeting held on 6
14 IASB staff Paper AP07, Transition Resource
February 2018, IASB, February 2018, p. 4.
Group for IFRS 17 Insurance contracts;
5
Summary of the Transition Resource Group for
reporting on other questions submitted, IASB,
IFRS 17 Insurance Contracts meeting held on 6
February 2018, Log S09.
February 2018, IASB, February 2018, pp. 4-5.
15 Summary of the Transition Resource Group for
6
Summary of the Transition Resource Group for
IFRS 17 Insurance Contracts meeting held on 2
IFRS 17 Insurance Contracts meeting held on 2
May 2018, IASB, May 2018, pp. 8-11.
May 2018, IASB, May 2018, pp. 6-7.
16 IASB staff Paper AP05, Determining the
7
Summary of the Transition Resource Group for
quantity of benefits for applying coverage
IFRS 17 Insurance Contracts meeting held on 2
units; Transition Resource Group for IFRS
May 2018, IASB, May 2018, p. 5.
17 Insurance contracts, IASB, May 2018,
8
Summary of the Transition Resource Group for
pp. 20-41.
IFRS 17 Insurance Contracts meeting held on 6
17 IASB staff Paper AP05, Determining the
February 2018, IASB, February 2018, pp. 7-8
quantity of benefits for applying coverage
9 IASB staff Paper AP07, Transition Resource
units; Transition Resource Group for IFRS
Group for IFRS 17 Insurance contracts;
17 Insurance contracts, IASB, May 2018,
reporting on other questions submitted, IASB,
pp. 13-17.
May 2018, Log S14,S37.
18 Summary of the Transition Resource Group for
10 IASB staff Paper AP07, Transition Resource
IFRS 17 Insurance Contracts meeting held on 2
Group for IFRS 17 Insurance contracts;
May 2018, IASB, May 2018, pp. 12-13.
reporting on other questions submitted, IASB,
May 2018, Log S29.
4614 Chapter 52
19 Summary of the Transition Resource Group for 34 IASB staff Paper AP07, Transition Resource
IFRS 17 Insurance Contracts meeting held on 6
Group for IFRS 17 Insurance contracts;
February 2018, IASB, February 2018, p. 6.
reporting on other questions submitted, IASB,
20 IASB staff Paper AP07, Transition Resource
February 2018, Log S26.
Group for IFRS 17 Insurance contracts; 35 Summary of the Transition Resource Group for
reporting on other questions submitted, IASB,
IFRS 17 Insurance Contracts meeting held on 2
February 2018, Log S04.
May 2018, IASB, May 2018, p. 11.
21 IASB staff Paper AP06, Transition Resource
36 Summary of the Transition Resource Group for
Group for IFRS 17 Implementation challenges
IFRS 17 Insurance Contracts meeting held on 2
outreach report, IASB, May 2018.
May 2018, IASB, May 2018, pp. 11.
22 IASB staff Paper AP05, Determining the 37 IASB Update, June 2018.
quantity of benefits for applying coverage
38 Insurance contracts: Responding to the external
units; Transition Resource Group for IFRS
editorial review, IASB staff paper 2C,
17 Insurance contracts, IASB, May 2018,
February 2017, Issue A12.
pp. 20-41.
39 IASB staff Paper AP07, Transition Resource
23 Insurance contracts issued by mutual entities,
Group for IFRS 17 Insurance contracts;
IASB, July 2018.
reporting on other questions submitted, IASB,
24 Insurance contracts issued by mutual entities,
February 2018, Log S04.
IASB, July 2018.
40 IASB staff Paper AP07, Transition Resource
25 Summary of the Transition Resource Group for
Group for IFRS 17 Insurance contracts;
IFRS 17 Insurance Contracts meeting held on 6
reporting on other questions submitted, IASB,
February 2018, IASB, February 2018, p. 11.
May 2018, Log S32.
26 IASB staff Paper AP06, Transition Resource
41 IASB staff Paper AP06, Transition Resource
Group for IFRS 17 Implementation challenges