IFRS 17, or the International Financial Reporting Standard 17, is a set of accounting standards developed by the International Accounting Standards Board (IASB) that governs the accounting for insurance contracts. It replaces IFRS 4, which was previously the standard for insurance contracts but was seen as lacking comparability and transparency.
IFRS 17 was developed to address these issues by providing a comprehensive and consistent framework for the accounting of insurance contracts. It introduces new principles-based requirements for the recognition, measurement, presentation, and disclosure of insurance contracts. The standard aims to provide users of financial statements with more relevant and transparent information about an insurer’s financial position, performance, and risk exposure related to insurance contracts.
Key features of IFRS 17 include:
Measurement of Insurance Liabilities: Under IFRS 17, insurance liabilities are measured using a current value approach, which incorporates the time value of money, the probability of future cash flows, and a risk adjustment.
Contractual Service Margin (CSM): The CSM represents the unearned profit that insurers will recognize over the coverage period of the insurance contracts. It is released to the income statement as the entity provides insurance coverage over time.
Separate Presentation of Components: IFRS 17 requires insurers to separately present insurance revenue, insurance service expenses, and insurance finance income or expenses in their income statement to provide greater transparency.
Disclosure Requirements: The standard introduces extensive disclosure requirements to provide users of financial statements with detailed information about an insurer’s insurance contracts, including the risks associated with those contracts and the sensitivity of financial results to changes in assumptions.
IFRS 17 was issued in May 2017 and has an effective date of January 1, 2023, with earlier application permitted. Its implementation can be complex and requires significant changes to systems, processes, and data management for insurance companies.