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05/08/2013 | EFRAG's Draft Comment Letter on the IASB’s revised Exposure Draft Insurance Contracts - ED/2013/07

EFRAG issued its Draft Comment Letter on the IASB’s revised Exposure Draft Insurance Contracts (ED/2013/07). Comments on the letter are invited by 18 October 2013.

On 20 June 2013, the IASB published a revised exposure draft (ED) of proposals for the accounting for Insurance Contracts.

EFRAG appreciates the large number of changes, which the IASB has made in response to the comments on the 2010 Exposure Draft, including EFRAG. EFRAG supports most of those changes.  

However, EFRAG has concerns about several aspects of the revised proposals, namely:

  • The IASB’s proposals in the ED in combination with the classification and measurement requirements in other standards are not helpful in eliminating accounting mismatches and would result in reporting the insurance performance split across profit or loss and OCI;
  • The IASB should consider acknowledging the long-term investment ‘liability driven’ business model of insurance activities, under which model the use of fair value through OCI for all assets involved in the asset-liability management to match stable liabilities would convey relevant information of the underlying long-term business model. For these assets, EFRAG tentatively believes that entities should present in profit or loss (i) returns on assets, (ii) gains and losses on realisation and (iii) impairment losses, which together with the interest cost of the period provide the primary indicator of performance for these activities; and
  • In respect of the proposed measurement and presentation exception, EFRAG believes that ‘mirroring’ should start from the liabilities side and not from the assets side. Furthermore, if applied, the scope of the exception should be wider. Additional concerns are that part of the insurance liability will be measured on a basis different from the present value of the fulfilment cash flows, and  that presenting the effects of changes in the discount rate partly in other comprehensive income and partly in profit or loss would make financial statements difficult to understand and would impair comparability of contracts with similar economic features. EFRAG is considering whether an insurance industry alternative proposal could, wholly or partly, address these concerns.

To support the IASB’s effort in developing a robust standard for insurance contracts, EFRAG, in cooperation with the national standard setters of France, Germany, Italy and the United Kingdom, and the IASB, is organising field-test activities with participants from the insurance and reinsurance industry. EFRAG will also participate in the forthcoming IASB’s outreach activities carried out with users of financial statements in Europe.

    Document : EFRAG_Draft_Comment_Letter_-_Insurance_Contracts.pdf
    Linked Project : click here

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