IFRS 4 Update

An update on the progress on a new international accounting standard for insurance.  This is largely culled from the notes that the big 4 have produced on this subject which in turn come from the ILAG financial practitioner briefing.  I'm including a link to the KPMG material on this, but all of the big 4 have similar content.

http://www.kpmg.com

The key points for me are that:

• IFRS 4 now has a planned effective date of 1 January 2018.  This is also the planned date for implementation of IFRS 9.  This is a welcome development as the two standards cover the assets investments an liabilities of an insurer and to implement one before the other would have led to some odd results and two transitions.  

• Given that, even if everything goes to plan, we are four years away from implementation I will put this on the pending pile, at least until a revised IFRS 4 is issued next year 

• There seems to be some discussion over how the requirement to take changes in the discount rate on reserves to the OCI will be implemented.  It seems as if companies will have a degree of choice here and will be follow different rules for different portfolios.  I'm sure there is a good reason for this, although rather harder to think what it might be.  It would seem to suggest that you could get two companies with identical business and identical results, both accounting under IFRS 4 but showing different amounts as profit.

• The links below are to my previous posts on IFRS 4 and related topics.

21 August

2nd August

25 July

On a more speculative theme I wonder if the ability to have different treatments within IFRS 4 and the whole UK GAAP / IFRS issue might make HMRC and HMT consider how appropriate a profit based tax is for insurance companies?  This might be because it is notoriously difficult to measure the profit on long term business in any one set of accounts.  Also for "one period" companies that operate in conditions of near perfect competition I can see that maximizing profit equals maximizing welfare and that if governments are determined to levy a corporation tax then profit is the least bad base for the tax.  

But I'm don't see that any of those arguments apply for insurance.  You won't get perfect competition in regulated markets and what we want from insurance companies is stable companies who make long term profits from providing products that people need, rather than making short term profits driven by a sales culture.  To pick a topical example you might want insurers to provide good value products for people with small pension pots at retirement, even if that meant accepting a low return on capital employed.  Perhaps insurance companies who embrace these social "goods" should be taxed as pseudo mutual companies and exempt from tax on profits.