IFRS Newsletter: Insurance, Issue 54, May 2016

22 Pages·2016·0.61 MB·English

Issue 54, May 2016
Insurance
IFRS Newsletter
“The Board fnished
its redeliberations of
IFRS 4 amendments
the amendments to
IFRS 4 and expects
to issue them set for balloting
in September.”
– Joachim Kölschbach, At its May meeting, the IASB fnished discussing its exposure
KPMG’s global IFRS draft Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
insurance leader Contracts (the ED).
Temporary exemption – Eligibility reassessment criteria
The IASB agreed that an entity that applies the temporary exemption and
subsequently ceases to be eligible for it would be required to apply IFRS 9 in the
second annual reporting period that begins after the change in eligibility.1 It also
agreed to permit entities that are not eligible for the temporary exemption at the
initial assessment date to reassess their eligibility before the mandatory effective
date of IFRS 9 if there is a demonstrable change in their corporate structure that
could result in a change in the predominant activities of the entity.
Other target areas
The IASB confrmed that it would permit frst-time adopters of IFRS to apply
the temporary exemption and the overlay approach if they meet the eligibility
requirements and qualifying criteria.
It also provided relief for investors in associates and joint ventures when using the
equity method of accounting from the requirement to apply uniform accounting
policies if either investor or investee applies the temporary exemption, but the
Contents other does not. The Board also confrmed a fxed expiry date for the temporary
exemption of 1 January 2021.
Temporary exemption 2
Other target areas 6 Next steps
Appendix: Summary of The Board granted the staff permission to begin the balloting process. The fnal
IASB’s redeliberations 13 amendments to IFRS 4 are expected to be published in September 2016.
Meanwhile, the Board is continuing its balloting process for the forthcoming
Project milestones and insurance contracts standard and expects to issue it around the end of 2016.
timeline 18
KPMG contacts 19
Keeping you informed 20
Acknowledgements 22 1. Only relevant as long as the second annual reporting period is earlier than the one that begins
on or after the fxed expiry date of the temporary exemption.
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Temporary exemption
The IASB revised the Eligibility reassessment criteria
date at which entities
What’s the issue?
would have to apply The ED proposed that subsequent to initial assessment for the temporary
IFRS 9 if they cease exemption from applying IFRS 9, an entity would be required to reassess its
to be eligible for the eligibility if there is a demonstrable change in the entity’s corporate structure. It
also proposed that if, as a result of the reassessment, the entity is no longer eligible
exemption. for the temporary exemption, then it would apply IFRS 9 from the beginning of its
next annual reporting period.2
Feedback from respondents did not support these proposals, because they did not
believe there would be enough time to apply IFRS 9 from the beginning of the next
annual reporting period immediately after the entity determines that it no longer
qualifes for the temporary exemption from applying IFRS 9.
What did the staff recommend?
The staff recommended the following.34
Recommendation Rationale
Eligibility reassessment criteria (when an entity is already eligible and
applies the temporary exemption)
Confrm the ED proposals that an − The staff believed that these
entity:3 proposals properly identify those
circumstances in which the
− should reassess whether its entity’s activities are no longer
activities are still predominantly predominately related to insurance
related to insurance if, and only if, without requiring the entity to incur
there has been a demonstrable the costs and effort to assess its
change in the corporate structure eligibility on an annual basis.
that could result in a change in the
predominant activities of the entity;
and
− re-compute the predominance ratio
using the carrying amounts of the
liabilities at the annual reporting
date immediately following the
change in corporate structure.4
2. For more information, see our eN w on the oH rioz n : Insurance amendments .
3. To read the specifc wording recommended for confrmation by the staff, see the .DE
4. The re-computation of the predominance ratio would apply in the event of any demonstrable
change in the entity’s corporate structure that occurs subsequent to the initial assessment
date (i.e. annual reporting date between 1 April 2015 and 31 March 2016).
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Recommendation Rationale
When an entity’s activities are no − The staff did not believe that it
longer predominantly related to would take three years from the
insurance, the entity should be reassessment date for an entity to
required to apply IFRS 9 from the implement IFRS 9 because it was
earlier of: issued in July 2014 and signifcant
progress has been made in terms
− its second annual reporting period
of market understanding since the
that begins after that change in
standard was issued.
corporate structure; and
− The staff also recognised that
− its annual reporting period that
an entity may not have enough
begins on or after the fxed expiry
time to prepare if it were
date of the temporary exemption.
required to implement IFRS 9
immediately after determining
that it no longer qualifes for the
temporary exemption.
When an entity’s activities are no − The staff believed that the proposed
longer predominantly related to disclosures would help users to
insurance, the entity should disclose in understand the change in corporate
the annual reporting periods before it structure.
applies IFRS 9:
− However, given the delay in
− the fact that it is no longer eligible to implementing IFRS 9 (see
apply the temporary exemption and recommendation above), the staff
why; and believed that these disclosures
should be required immediately
− the date on which the change in
after the change in corporate
corporate structure occurred.
structure takes place (i.e. for all
annual reporting periods after the
change takes place until the entity
applies IFRS 9).
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Recommendation Rationale
Eligibility reassessment criteria (when an entity was not previously eligible
for the temporary exemption)
An entity that was not previously − Given the Board’s decision in April
eligible for the temporary exemption 2016 to require an initial eligibility
should be permitted to reassess assessment at the annual reporting
its eligibility before the mandatory date between 1 April 2015 and
effective date of IFRS 9 (1 January 31 March 2016, an entity may not
2018) if there is a demonstrable meet the eligibility requirements for
change in its corporate structure the approach at that date but may
before 2018 that could result in a meet them before the mandatory
change in the predominant activities of effective date of IFRS 9.
the entity.
− The staff believed that entities
The computation of the predominance that experience a demonstrable
ratio should use the carrying amounts change in their corporate structure
of the liabilities at the annual reporting between these two periods
date immediately following the should be permitted to apply the
demonstrable change in corporate temporary exemption if they have
5
structure. not previously applied IFRS 9.
An entity that becomes eligible for the − The staff believed that it is
temporary exemption should explain important that the rationale for the
how it concluded that it is eligible and change in eligibility is transparent to
disclose: the users of fnancial statements.
− the reason for the reassessment;
− an explanation of the change in its
predominant activities; and
− the date on which the change in
corporate structure occurred that
made it eligible.
When to reassess eligibility
A demonstrable change in the entity’s − Based on feedback from a few
corporate structure that could result in stakeholders, the staff believed that
a change in the entity’s predominant they should clarify how an entity
activities would have to be signifcant can identify a demonstrable change
to its operations and demonstrable to in corporate structure.
external parties.
− This guidance is consistent
with that provided in IFRS 9 on
the reclassifcation of fnancial
assets as a result of a change in
business model.
5
5. The re-computation of the predominance ratio would apply in the event of any demonstrable
change in the entity’s corporate structure that occurs subsequent to the initial assessment
date (i.e. annual reporting date between 1 April 2015 and 31 March 2016).
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What did the IASB discuss?
nO e oB ard member epx ressed the need to articulate careuf lly in the n� al
amendments that the reassessment ow uld be made atf er the change in corporate
structure has happened, not hw en the intention or commitment to a change in
corporate structure occurs.
In response to a uq estion rf om a oB ard member, the sta f f noted that they iw ll
consider adding an eax mple to the n� al amendments o f a change in corporate
structure that ow uld not result in a change in the predominant activities.
What did the IASB decide?
The IASB agreed with the staff recommendations.
KPMG insight
The decision to allow entities that become ineligible for the temporary
exemption a grace period of one year between the reassessment date and the
date at which they have to apply IFRS 9 would give them additional time to plan
their implementation. However, for some entities implementing IFRS 9, a year
may not be long enough. It is therefore critical that entities that are considering
signifcant acquisitions, disposals or similar restructurings plan ahead.
Entities should be proactive in forecasting whether any strategic business
decisions (e.g. corporate structure activities) could impact their ability to apply
the temporary exemption. Those that foresee that it is reasonably likely that
corporate structure changes may impact their predominant activities should
consider developing pro forma fnancial balances to develop probabilities
and sensitivities of how such changes would affect their ability to apply the
temporary exemption. They should then use these results to help them
develop a forward-looking plan for implementing IFRS 9.
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Other target areas
The IASB agreed that First-time adopters of IFRS
a frst-time adopter
What’s the issue?
of IFRS would be The ED proposed that frst-time adopters of IFRS6 would be prohibited from
permitted to apply the applying both the temporary exemption and the overlay approach.7
temporary exemption Some respondents did not support this proposal, because they believed that some
or overlay approach. of the concerns that the amendments are designed to address could also apply to
frst-time adopters. Specifcally, they noted that a frst-time adopter may currently:
− present fnancial information in its fnancial statements applying a national GAAP
that is similar to IFRS; or
− report IFRS fnancial information for consolidation purposes to a group that
already reports under IFRS.
In both instances, a frst-time adopter would have reporting systems, internal
processes and procedures and management policies in place to prepare fnancial
information under or similar to IAS 39 Financial Instruments: Recognition and
Measurement.
What did the staff recommend?
Based on the feedback received, the staff recommended the following changes to
the proposals in the ED.
Recommendation Rationale
Temporary exemption
A frst-time adopter should be − The staff acknowledged that there
permitted to apply the temporary are some frst-time adopters
exemption if it meets the qualifying that have the same concerns as
criteria. entities that have already adopted
IFRS. Accordingly, they believed
When assessing the qualifying criteria
that these frst-time adopters
on the initial date of assessment
should be permitted to apply the
(i.e. annual reporting date between
temporary exemption.
1 April 2015 and 31 March 2016), the
frst-time adopter should use the − However, a frst-time adopter would
carrying amounts of liabilities applying not previously have presented
applicable IFRS standards. fnancial statements applying IFRS
standards – therefore, the staff
believed that a frst-time adopter
should be required to use the
carrying amounts of liabilities as
if the entity presented a balance
sheet applying IFRS on the date of
the assessment.
6. An entity that presents its frst set of IFRS fnancial statements during reporting periods
that end after 1 January 2018. Those that apply IFRS for the frst time before 2018 were not
considered during the Board’s discussion, because they would already be permitted to use
both approaches, if they are eligible for them.
7. For more information, see our eN w on the oH rioz n : Insurance amendments .
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Recommendation Rationale
− The staff believed that this
recommendation would limit the
temporary exemption to frst-time
adopters that already have internal
reporting systems that apply IFRS
or are not signifcantly different
from IFRS.
Overlay approach
A frst-time adopter should be − The staff recommended also
permitted to apply the overlay making the overlay approach
approach to qualifying assets. available to frst-time adopters due
to the feedback from respondents.
A frst-time adopter that applies the
overlay approach should be required − They also believed that only
to restate comparative information frst-time adopters that have
to refect the overlay approach when presented fnancial statements
it restates comparative information applying requirements that are not
in accordance with IFRS 1 First-time signifcantly different from IAS 39
Adoption of International Financial would be interested in applying the
Standards. approach. Otherwise, signifcant
cost and effort would be required.
− The staff’s restatement
recommendation maintains
consistency with the IFRS 1 short-
term relief from applying IFRS 9 in
comparative periods.
What did the IASB discuss?
One Board member said that the fnal amendments should make it clear that if a
frst-time adopter applies either the temporary exemption or the overlay approach,
then it would still have to adopt IFRS on the date of initial application, which means
that it would have to apply IAS 39 on the date of initial adoption (in addition to the
temporary exemption or overlay approach), regardless of how different its national
GAAP is from IFRS.
What did the IASB decide?
hT e IA BS agreed iw th the sta f f recommendations.
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The IASB provided Relief for investors in associates and
relief for investors in
joint ventures
associates and joint
What’s the issue?
ventures from the
Paragraphs 35–36 of IAS 28 Investment in Associates and Joint Ventures require an
requirement to use
entity to adjust an associate’s or joint venture’s accounting policies to make them
uniform accounting conform to its own accounting policies when the entity applies the equity method.
policies. Consequently, if an investee applies the temporary exemption in its fnancial
statements but the investor does not, then the investor would be required to apply
IFRS 9 to that investee’s fnancial statements before applying the equity method (or
vice versa).
A few respondents asked the Board to provide relief from this requirement so that
an investor could retain the fnancial instruments accounting applied by an investee.
What did the staff recommend?
The staff noted that the Board’s decision to determine eligibility for the temporary
exemption at the reporting entity level is consistent with the eligibility for the
exception from consolidation for investment entities in IFRS 10 Consolidated
Financial Statements and with the requirement in IFRS 10 to apply uniform
accounting policies.
However, the staff also noted that:
− an investor could experience signifcant practical diffculties and/or additional
costs in obtaining the information needed to apply IFRS 9 or unwind the
application of IFRS 9 in the fnancial statements of an investee; and
− relief exists for non-investment entity investors with investees that are
investment entities.
The staff therefore concluded that the practical diffculties and potential additional
costs of obtaining the information needed would be likely to outweigh the benefts,
and that the resulting loss of consistency in accounting policies could be mitigated
by requiring suitable disclosures.
The staff therefore recommended the following relief.
An investor that applies… … should be permitted (but not required) to…
IFRS 9 (with or without Retain the IAS 39 accounting used by any
overlay adjustment) associate or joint venture that applies the
temporary exemption in its fnancial statements.
The temporary exemption Retain the IFRS 9 accounting (with or without
the overlay adjustment) used by any associate or
joint venture in its fnancial statements.
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The relief would apply on an investment-by-investment basis, because preventing
an investor from using the IFRS 9 information that is available for some of its
investees could reduce the quality of information provided to users of the investor’s
fnancial statements. An investor that chooses to apply IFRS 9 in using the
equity method to account for an investee cannot later choose to apply IAS 39 in
subsequent reporting periods.
In addition, the staff proposed that the investor reproduce certain of its investee’s
disclosures (if the investee has applied either the temporary exemption or the
overlay approach):
− if they are individually material to the investor’s fnancial statements, including:
- the disclosures applicable to entities applying the temporary exemption or
overlay approach for each investee for which the temporary exemption or
overlay approach, respectively, has been applied in the fnancial statements
used by the investor to apply the equity method for that investee; and
− if they are individually immaterial but material in aggregate to the investor’s
fnancial statements:
- in the aggregate, the quantitative disclosures applicable to entities applying
the temporary exemption or overlay approach for all investees for which the
temporary exemption or overlay approach, respectively, has been applied in
the fnancial statements used by the investor to apply the equity method for
those investees.
The staff also proposed that the amounts disclosed:
− for individually material investees: should be those included in the IFRS fnancial
statements of the investee, and not the investor’s share of those amounts; and
− for investees that are individually immaterial but material in aggregate: should be
the investor’s share of those amounts included by applying the equity method.
What did the IASB discuss?
One Board member argued that the fnal amendments should make it clear that
this is a one-time accounting policy choice, which should not be reconsidered at a
later point in time.
What did the IASB decide?
hT e IA BS agreed iw th the sta f f recommendations.
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The IASB confrmed Confrmation of outstanding details
the proposals in the ED
What’s the issue?
for various aspects of
The staff asked the Board to confrm various other aspects of the temporary
both approaches. exemption and the overlay approach, based on stakeholder feedback.
What did the staff recommend?
The staff recommended that the Board confrm the following proposals from
the ED.
Recommendation Rationale
Fixed expiry date
Confrm the ED proposals that:8 − The IASB received mixed feedback
on the fxed expiry date for the
− an entity should be required to
temporary exemption, with most
cease applying the temporary
respondents that did not support
exemption no later than for annual
the proposal being preparers.
reporting periods beginning on or
after 1 January 2021 (paragraph − The Board had previously said
20A); and that the temporary exemption
would be acceptable only if the
− the overlay approach should not
period between the effective date
have a fxed expiry date.
of IFRS 9 and the forthcoming
insurance contracts standard would
be short.
− Because there have been no
changes in the expected publication
date of the forthcoming insurance
contracts standard since the ED
was published, the staff did not
believe that a revised expiry date
is required (i.e. the difference
between the effective dates would
remain short).
− Given that the overlay approach
still results in the application
and presentation of fnancial
statements under IFRS 9, the staff
did not believe that an expiry date is
required for the overlay approach.
8
8. To read the specifc wording recommended for confrmation by the staff, see the .DE
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