IFRS 17 – Insurance contracts: Implementing the standard and its effect on measuring insurance contracts and financial reporting

The insurance industry has long been lacking a global accounting standard. The existing insurance International Financial Reporting Standard, IFRS 4, was published in 2004 as an emergency standard while the final version was in the works. IFRS 4 was meant to address the most urgent issues in the industry, while mostly allowing insurers to continue their existing practices. Currently the insurance industry is filled with a myriad inconsistent practice, making it difficult for users of financial statements to understand and compare them. IFRS 17 Insurance Contracts is the finalized comprehensive standard coming into effect on 1 January 2023, with the transition proceedings having already begun. This study examines the implementation of IFRS 17 and its impact on how insurers measure insurance contracts they have issued or acquired and how resulting profits or losses are presented in financial statements. It focuses on the main principles and objectives of IFRS 17 through the three measurement approaches used to calculate the carrying amounts of insurance contracts. Following with examining the transition requirements and the three transition approaches insurers will use to measure existing insurance contracts to achieve appropriate opening balances ahead of the effective date. Lastly it looks at the key changes IFRS 17 brings to the presentation of financial statements and disclosure requirements. To bring insurance accounting in line with other industries using the accrual method, IFRS 17 introduces the contractual service margin to ensure timely recognition of profits and expenses in corresponding periods. It requires the use of current estimates about the timing, amount and uncertainty of future cash flows throughout the duration of insurance contracts. To bring transparency about arising profits, IFRS 17 excludes from its scope distinct good and service components and investment components, shifting them under the scope of their respective IFRS Standards. IFRS 4 does not include specific presentation requirements for financial statements. In contrast, IFRS 17 will require the balance sheet to present portfolios of insurance contracts that are either assets or liabilities. The presentation of profit or loss is split into insurance service result and insurance finance result to bring transparency about the sources of profit. IFRS 17 builds on existing disclosure requirements and entities must include information about all significant methods and assumptions used and changes in them. This thesis is meant to provide its readers with an understanding of the objectives of IFRS 17 and how it will affect insurers measuring methods and financial reporting. As the standards has yet to come into effect, the actual effects of IFRS 17 will be seen after implementation. Thus, this study could be used as a foundation for further studies post-implementation