13 May 2022
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has issued a Public Statement on the Transparency on implementation of IFRS 17 Insurance Contracts.
The Statement highlights the importance of issuers accompanying users of their financial statements, so that they understand the expected accounting implications of the new Standard’s application. Given the expected impact and importance of IFRS 17 specifically for insurance undertakings and financial conglomerates, ESMA highlights the need for issuers to provide relevant and comparable information in their financial statements that enables users to assess the possible impact that IFRS 17 will have in the period of initial application.
ESMA’s recommendations cover the disclosures of expected impacts of the initial application of IFRS 17 in the interim and annual financial statements for 2022. ESMA expects management and supervisory boards members and auditors to take into account these recommendations, when fulfilling their respective obligations relating to the issuer’s interim and annual financial statements 2022.
In line with past major standards (IFRS 9 and IFRS 15), in the year prior to their effective date ESMA provides a roadmap to help issuers in providing the disclosures on expected impacts of new, but not yet effective, standards, as required by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
Next steps
ESMA, and the National Competent Authorities, will consider how the recommendations in the Public Statement have been implemented by issuers in their interim and annual financial statements 2022.
IFRS 17 replaces the requirements of IFRS 4 Insurance Contracts which generally allows entities to use a wide variety of accounting practices for insurance contracts, reflecting national accounting requirements and variations in those requirements. IFRS 17 includes principles-based requirements that aim to improve the comparability of the measurement and presentation of insurance contracts across issuers.
The Standard requires issuers to reflect, on a more timely and transparent basis, the effect of economic changes arising from insurance contracts on the performance and financial position and cash flows of the issuer. By increasing the level of transparency, IFRS 17 provides better insights into the issuers’ business models. Overall, the new requirements are expected to have a positive impact on investor protection and financial stability.