The background to this is I went to an ILAG presentation on Financial Reporting. It was billed as being for people with a good knowledge of the area. I decided to go anyway on the basis of how complicated could it be? Turned out it could be plenty complicated - I think I got 60% of what was going on but please don't take anything I say on the topic as gospel.
- UK GAAP
Ray Tidbury of Mazars spoke on this topic at the ILAG presentation. UK GAAP will cater to the life insurance industries sense of exceptionalism by being boiled down to four standards FRS 100 - FRS 103 with FRS 103 being for just life insurance. There is supposed to be an exposure draft coming out in July (FRED 49) but I don't think this has been published yet - I'll link to it in the Friday update when the FRC publishes.
FRS 103 is really a consolidation of existing UK GAAP so will bundle together features of IFRS 4 phase 1, FRS 27 and the ABI SORP.
However, FRS 103 will apply to insurance contracts rather than all of the business of an insurance company and the IFRS 4 definition of insurance business will apply.
Unlike IFRS 4 phase ii FRS 103 will allow shareholder surplus to be included in the FFA i.e. not recognised in profit.
IFRS 103 will apply from 1 January 2015 although this will mean reworking 2014 figures for comparatives.
- IFRS 4 Phase ii
http://www.ifrs.org/Current-Projects/IASB-Projects/Insurance-Contracts/Exposure-Draft-June-2013/Pages/Exposure-Draft-and-comment-letters.aspx
If you scroll down through the note explaining how they made a mistake in the first version of the second exposure draft you will come to the ED.
I'll confess I've not gone through the ED but found this a good summary with a few tax comments.
http://www.kpmg.com/au/en/issuesandinsights/articlespublications/pages/ifrs-4-phase-ii-revised-exposure-draft.aspx
The speakers on this topic at the ILAG presentation were Joanna Yeoh from the IFRS and Tamsin Abbey of Deloitte.
Key points as far as I can see are
The proposal that all profit (past, present and future) should be recognized in reserves on the transition to IFRS 4 phase ii has been abandoned. Instead transition will be dealt with by assuming that IFRS 4 phase ii has always been in place with profit "earned" to the date of transition being included in reserves. This removes the possibility that taxable profits based on IFRS 4 phase ii would include amounts that hadn't been earned and that might never materialize.
There seems to be the prospect that more items will be included in the OCI than is currently the case, this might include unrealized gains as well as differences between discount rates at policy inception and market interest rates. My (bitter) experience with US GAAP is that at some point someone decides that the I-E tax charge needs to be divided between the income statement and the OCI. This is a shocking task.
Given the use of the OCI its not clear to me that profit before tax per the income statement will be the best starting point for a computation of taxable profits.
If the OCI is used for unrealised gains on bonds and HMRC's proposal to disregard amounts in OCI for loan relationship purposes is adopted it might reduce the volatility of the I-E result which would be welcome.
As per the above the result of the "mirroring" approach for participating contracts might result in amounts on with profit contracts that are currently included in the UDS emerging as profit.
Current date for implementation is 2018 although I did note from the IFRS notes that it is described as "approximately three years from the standard being issued".
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