IAIS commented on the IASBs 'Request for Views on Effective Dates and Transition Methods'
31 January 2011
The IAIS's primary concerns are on the application dates and transition arrangements of the Insurance Contracts and Financial Instruments projects. The IAIS believes that these should be consistent to the extent that the requirements of the standards are the same, or at least highly comparable.
In particular, it is important that the outcome of the IASB’s consideration of effective dates for these projects avoids the need for successive reclassification or redesignation of financial assets by insurers (e.g. initially at the effective date of IFRS 9 and subsequently at the effective date of the insurance contract standard). An alignment of effective dates for these projects would reduce the burden for preparers, while also reducing some complexity for users.
If the Board is not able to ensure that the effective date of the insurance standard coincides with that of IFRS 9, then the IAIS is of the view that the latter of the two effective dates should be suitably timed in order to ensure an appropriate gap between mandatory date of application of the two standards, and thereby reduce the risk of insurers' financial statements showing significant changes to accounting in successive years.
In addition, while early adoption of the later standard might allow an opportunity for implementation of the two standards at the same time, this will only be beneficial in the event that there is sufficient time prior to adoption for a full and proper consideration of the implications of implementation.
More generally, the IAIS believes that the effective date and transition methods of new standards should be set with full regard to all relevant facts and circumstances, including the significance of the new standards and the need for sufficient time to ensure that preparers will be able to implement the new standards appropriately.
With regards to transition methods proposed in the Insurance Contracts project, the IAIS believes that the standard should permit preparers to apply full retrospective application. The next best option would be to look for a suitable proxy for the calculation, with full disclosure of the methodology used. As stated in the IAIS comment letter on the Insurance Contracts ED, the IAIS believes that the concern of the Board about comparability of initial residual margins on transition does not outweigh the benefits of determining such an amount.
In respect of methods of adoption more generally, the IAIS believes that since new standards should be an improvement on accounting principles, it is often useful to have as early an application as possible. That said, while the IAIS believes that retrospective application is good for the purposes of comparability, it should be subject to cost/benefit considerations.
The IAIS is of the view that multiple changes to accounting requirements in short succession can have operational challenges. A single date approach is likely to be more beneficial than a sequential approach, provided that there is suitable lead time for implementation. However, should the Board decide to adopt a sequential approach, the IAIS believes that, of all the impending standards, it is vital that the insurance contracts, financial instruments and fair value measurement projects are adopted first and at the same time.
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