Categories: Business

AIICO begins implementation of IFRS 17, says policy good for financial reporting

AIICO Insurance Plc said it has commenced the implementation of the new financial reporting policy, called International Financial Reporting Standards (IFES 17), in a bid to achieve excellence in work processes.

IFRS 17 is a comprehensive standard to account for insurance contracts applicable to companies that prepare financial statements under IFRS and it replaces IFRS 4, which was not a comprehensive standard, while the new standard provides a single global accounting standard for insurance contracts.

The International Financial Reporting Standards (IFRS 17) Project Manager at AIICO Insurance Plc, Mr Mayowa Korode, also disclosed the strategic reasons the IFRS 17 scheme was developed.

According to him, the IFRS 17 was developed “To bring consistency to financial reporting around the globe for companies reporting under IFRS 17 and to compare insurance companies to those operating in other sectors of economy.”

He pointed out that AIICO Insurance is fully ready for the implementation, adding that the company’s first and second quarters 2023 reports were done in IFRS 17 model.

Korode, who spoke at the annual training for members of the Nigerian Association of Insurance and Pension Editors (NAIPE) sponsored by AIICO Insurance in Lagos, noted that the most fundamental element of change that IFRS 17 brings is the “closer alignment of the accounting to the underlying economics of insurance.”

He stated that AIICO Insurance is ready for full implementation of the new standard.

Explaining the issues in IFRS 4 and how IFRS 17 addresses the problem, he said, “IFRS 4 has a variety of treatments depending on type of contract and company, estimates for long-duration contracts not updated, discount rate based on estimates does not reflect economic risks and lack of discounting for measurement of some contracts and little information on economic value of embedded options and guarantees.”

Whereas, “IFRS 17 provides consistent accounting for all insurance contracts by all companies, estimates updated to reflect current market-based information, discount rate reflects characteristics of the cash flows of the contract, measurement of insurance contract reflects time value where significant and measurement reflects information about full range of possible outcomes.”

He noted that the balance sheet in IFRS 17 requires a current measurement model, where estimates are re-measured in each reporting period.

According to him, the measurement is based on the building blocks of discounted, probability-weighted cash flows, a risk adjustment and a contractual service margin (CSM) representing the unearned profit of the contract.

He stressed that for income statement, requirements in IFRS 17 align the presentation of revenue with other industries while investment components are excluded from revenue.

Under IFRS 17, entities have an accounting policy choice to recognise the impact of changes in discount rates in profit, loss or in other comprehensive income (OCI) to reduce some volatility in profit or loss.

On disclosures, Korode said IFRS 17 disclosures will be more detailed than required under current reporting frameworks, disclosures will provide additional insight into key judgements and profit emergence, noting that disclosures are designed to allow greater comparability across entities.

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