The National Insurance Commission, (NAICOM) has said it will this year intensify effort in preparing operators for total adoption of International Financial Reporting System (IFRS) 17, an advanced of IFRS 4 which the industry had adopted.
The commission also disclosed that it would more than double efforts so as to ensure that operators are well prepared ahead of 2022.
Speaking exclusively to THISDAY on the workings of the IFRS17 and how the commission was preparing grounds for its full adoption, NAICOM Director Governance, Enforcement and Compliance, Mr. Barneka Thompson, said the commission would fully adopt the standards in 2022. He, however, pointed out that intensive preparation of the operators would commence this year.
According to him, the commission started this preparation since 2017, but on a very slow pace.
Speaking on the difference between the IFRS 4 and 17, Barneka said, “the degree of change from IFRS 4 to IFRS 17 is very huge and significant and it impacts not only on financial reporting processes but on every other system great.
“The management information system of the company, the IT system the actuarial determination and practice of the company, the internal processes as in process management, the strategy of the companies the corporate strategy will be modified to accommodate the degree of change.
Continuing he said, “talking about financial reporting, both the revenue recognition, measurement will be significantly impacted and also the degree of disclosure of matters and reporting on insurance contract will be different, the degree of analysis that will be required, the data system requirement, the past and present data and future projected data requirement will be significant.”
According to him, “it is not just something that you copy and paste, you do your gap analysis, your scooping and impact analysis before you commence. “By awareness and determining what you require to comply with the IFRS 17.
He said some countries started it since 2013, when initially the initiative introductory version was released until the final releases were made in 2018.
He said the IFRS 17 was not a regulatory drive, adding that NAICOM has the responsibility as regulator to ensure that in collaboration with Financial Reporting Council, it ensures that entities under its supervision conform to protocols signed by federal government as part of best practice .
He said, “the objective of its adoption is comparability of financial reporting and reporting of insurance companies’ accounts across the world.”
“This is what is being issued by the international accounting standard board and so it is the world’s best practice aside the US that still uses its GAP,” he added.
He said because of disclosure and reporting aspect of it, “a lot of things are going to be disclosed this year.”
The IFRS 17 is an standard that was issued by the International Accounting Standards Board in May 2017. It will replace IFRS 4 on accounting for insurance contracts and has an effective date of January 1, 2021. In November 2018 the International Accounting Standards Board proposed to delay the effective date by one year to January 1, 2022.
Under the IFRS 17 model, insurance contract liabilities will be calculated as the present value of future insurance cash flows with a provision for risk. The discount rate would reflect current interest rates. If the present value of future cash flows would produce a gain at the time a contract is issued the model would also require a “contractual service margin” to offset the day one gain.
The contractual service margin would amortise over the life of the contract. There would also be a new income statement presentation for insurance contracts, including a revised definition of revenue, and additional disclosure requirements.
IFRS 17 will also have accommodations for certain specific types of contracts. Short-duration insurance contracts will be permitted to use a simplified unearned premium liability model until a claim is incurred.