SOCPA Approves IASB’s amendments to IFRS 17
SOCPA, represented by its Accounting Standards Committee, adopted IASB’s amendments to IFRS 17, where a number of observations and application challenges were received prior to the application of the standard. Moreover, discussions was exchanged among IASB and users of financial statements. IASB decided to introduce a number of amendments that did not necessarily impact the main principles on which the standard was based. IASB ensured that said amendments would not result in lack of user information and create any challenges when applied by entities.
Amendments included:
1. Defer when said amendments shall enter into force; beginning of 2023. In addition to extending the option granted to insurance entities to defer application of the IFRS 9 "Financial Instruments" to the same date.
2. Determine the optimal scope, in particular:
· The standard provided an option to apply the standard or IFRS 9 on insurance contracts that cover risks pertaining to payment of obligations, such as exemption from payment of loans upon death.
· The standard excluded from its scope credit card contracts in relation to payments that meet the definition of an insurance contract and satisfies certain conditions.
3. Amendment to the requirements relating to the expected recovery of cash flows from the acquisition of insurance contracts resulting from the renewal of insurance contracts, so as to allow the allocation of such cash flows to newly issued insurance contract groups and future insurance contracts. The previous treatment required recognition of cash flows as an asset then annul such recognition and prevent allocation of acquisition costs on future renewals.
4. An amendment to the requirements related to the contractual service margin relating to investment activities, by introducing requirements for determining the contractual service margin while considering by considering the quantity of benefits and timing of both insurance coverage and investment-related services that include the benefit of direct participation. The amendment also includes requirements similar to insurance contracts that do not include the benefit of direct participation, where are services related to investment in those contracts may exist if there is an investment component or the policyholder has the right to withdraw an amount. The amendment also require quantitative disclosure requirements in addition to the qualitative disclosures that were required by the standard prior to this amendment.
5. An amendment regarding the applicability of the risk reduction option for contracts with direct participation features by extending the scope of the risk mitigation option for variable fee approach contracts. The risk mitigation option can now also be applied when an entity holds reinsurance contracts, or non-derivative financial instruments measured at fair value through profit or loss, to mitigate the effects of the time value of money and other financial risks, as an entity may recognize the effects of these financial risks in the statement of comprehensive income instead of adjusting the contractual service margin.
6. Amend requirements relating to reinsurance contracts held - expected recovery of losses on underlying onerous insurance contracts; recognize a gain on that contract when it recognizes a loss on initial recognition of an onerous group of insurance contracts covered by the reinsurance contract.
7. Simplified presentation of insurance contracts in the statement of financial position, as the amendment changes the level of aggregation for presentation purposes from group level to portfolios of insurance contracts issued that are assets and those that are liabilities.
8. The amendment provides additional reliefs for transition so as to reduce cost of transition to the standard.
9. The amendment introduced a number of editorial amendments to the standard.
These amendments can be viewed by clicking here.