IFRS 9 and IFRS 17 bring significant change for insurance groups reporting under IFRS – from pre-transition disclosures in 2022 to differences in 2023 interim and annual financial statements. Our seven steps will help you determine what information to present, when and how.
Switzerland's insurance companies that report under IFRS must deal with two new accounting standards. IFRS 9 Financial Instruments and IFRS 17 Insurance Contracts introduce significant changes to their financial reporting. These standards present a number of challenges. We have put together seven actions to help insurance executives prepare for them.
Seven actions will ensure a clear focus on the most relevant points insurers must address as IFRS 9 and 17 come into force:
- Understand the new requirements
- Review your journey to delivery
- Refine your accounting decisions
- Ensure appropriate controls are in place
- Plan your 2022 annual financial statements
- Plan for your 2023 interim financial statements
- Remain agile in your communication strategy.
Let's take a look at each of these actions in turn.
1. Understand the new requirements
Understanding the information you need to report in your 2022 and 2023 interim and annual financial statements is of course key. The requirements of IFRS 17 and 9 are very different to how things have been reported in the past. You may therefore see new accounting mismatches may arise that need highlighting and explaining by restating comparative information or applying a classification overlay approach (see our article on the new requirements)
2. Review your journey to delivery
The standard’s impacts on your financial statements will become clearer as you get closer to the effective date. As this happens, keep looking at how are communicating the changes. Consider what information that requires disclosure is either known or reasonably estimable; when you will communicate the information; and where you will do so – e.g. in your financial statements or in a supplementary report.
3. Refine your accounting decisions
As you review and refine the relevant accounting policies and judgments, you will need to reflect outcomes of your decisions in your communication with, and reporting to, stakeholders. Decisions might be because of inputs from your audit committee, assessment of your peers’ policies and judgments, or challenge from your external auditor, among other reasons. Engaging your external auditor early in this process will be useful so they can evaluate the appropriateness of your positions.
4. Ensure appropriate controls
There may be major changes involved in your reporting. Appropriate controls during the transition, initial assessments or temporary processes are as important as controls over processes in your new business-as-usual state. Design, implement and review your controls early, and speak to your external auditor to assess their design and operating effectiveness.
5. Plan your 2022 annual financial statements
IAS 8 requires you to disclose known or reasonably estimable information that is relevant to assessing the standards’ possible impacts on your financial statements in the initial application period. You need to ensure consistency between that information and the information you share outside your financial statement process such as through investor calls and MD&A.
6. Plan for your 2023 interim financial statements
Your 2023 interim financial statements will be the first under the new standards. You may need to restate comparative information for insurance contracts and financial assets. Decide whether you will present a complete or condensed set of interim financial statements. This may be impacted by the specific needs and expectations of your various stakeholder groups.
7. Remain agile in your communication strategy
Flexibility is key. Keep the momentum going, be agile and respond to changes or developments that impact your organization. This will be influenced by both internal and external factors. Sometimes, it will be necessary to communicate matters before all uncertainties have been resolved, as stakeholders expect timely communication. You may wish to consider additional collateral such as supplementary investor packages useful to satisfy their needs.
What are the immediate next steps?
We suggest that your priority should be to identify the information you need for your pre-transition disclosures for the 2022 year end. This includes what information will help stakeholders’ understanding and meet their expectations, as well as what is strictly required under the new standards. Given the scale of the challenge and the extent of the changes anticipated, we recommend starting to plan for your 2023 interim and year-end financial statements now.