Final Comment Letter - Initial Application of IFRS 17 and IFRS 9 – Comparative Information

The content on this page has been converted from PDF to HTML format using an artificial intelligence (AI) tool as part of our ongoing efforts to improve accessibility and usability of our publications. Note:

No human verification has been conducted of the converted content.
While we strive for accuracy, errors or omissions may exist.
This content is provided for informational purposes only and should not be relied upon as a definitive or authoritative source.
For the official and verified version of the publication, refer to the original PDF document.

If you identify any inaccuracies or have concerns about the content, please contact us at [email protected].

Dr Andreas Barckow Chairman International Accounting Standards Board 7 Westferry Circus Canary Wharf London E14 4HD

23 September 2021

Dear Dr Barckow

Invitation to Comment: Exposure Draft ED/2021/8 Initial Application of IFRS 17 and IFRS 9 – Comparative Information (Proposed Amendment to IFRS 17)

The UK Endorsement Board (UKEB) is responsible for endorsement and adoption of IFRS for use in the UK and therefore is the UK's National Standard Setter for IFRS. The UKEB also leads the UK's engagement with the IFRS Foundation (Foundation) on the development of new standards, amendments and interpretations. This letter is intended to contribute to the International Accounting Standards Board's (IASB) due process. The views expressed by the UKEB in this letter are separate from, and will not necessarily affect the conclusions in, any endorsement and adoption assessment on new or amended International Accounting Standards undertaken by the UKEB.

We welcome the opportunity to provide comment on the IASB's Exposure Draft Initial Application of IFRS 17 and IFRS 9 – Comparative Information (the IASB's ED).

Classification

We do not expect the proposed classification overlay to be widely used in the UK as we understand that, for most UK insurance companies, their classification of financial assets in accordance with IAS 39 Financial Instruments: Recognition and Measurement is broadly aligned with their expected classification on adoption of IFRS 9 Financial Instruments.

Nevertheless, we support the proposals in the IASB's ED. The classification overlay will enable insurers to increase the relevance and understandability of comparative information on transition to IFRS 17 Insurance Contracts, by permitting them to avoid classification mismatches that arise purely from differences in transition requirements between IFRS 9 and IFRS 17.

We agree that the classification overlay should be optional and be applied on an instrument-by-instrument basis, as this would allow insurance companies to assess whether, for a particular financial asset, the benefits of applying the proposed classification overlay outweigh the costs. This is also consistent with other related requirements in IFRS 9, which are applied at an instrument-by-instrument level, such as the assessment of whether the contractual terms of a financial asset are solely payments of principal and interest on the principal amount outstanding and the irrevocable designation of financial assets at fair value through profit or loss to eliminate or reduce an accounting mismatch.

We also agree that entities should present comparative information as if the classification and measurement requirements of IFRS 9 had been applied to financial assets within the scope of this classification overlay, based on reasonable and supportable information available at the transition date.

Impairment

We support permitting, but not requiring, entities to apply the impairment requirements in IFRS 9 to financial assets within the scope of the classification overlay. However, we recommend that the proposals in the IASB's ED are further enhanced by clarifying that the chosen approach to the application of IFRS 9 impairment requirements is an accounting policy decision that shall be consistently applied in accordance with IAS 8 paragraph 13, and is not made on an instrument-by-instrument basis. Impairment requirements are not directly related to eliminating accounting mismatches, which is the main issue the IASB's ED addresses.

Disclosure

For an insurer the classification overlay also enables greater relevance and comparability of financial information between periods. However, as a result of its optional nature, the classification overlay may reduce comparability between insurers. We believe that disclosure requirements in the IASB's ED should be enhanced to provide greater transparency for users of financial information.

We consider that, as a minimum, the following information should be disclosed at the date of transition to IFRS 17:

A general description of the classification overlay, the fact that it has been applied and the reason for its application.
The financial assets subject to the classification overlay, and how they have been reclassified.
The impairment approach used (i.e. whether the expected credit loss model in IFRS 9 has been applied).
The amount recognised in opening retained earnings (or other appropriate component of equity) resulting from the application of the classification overlay at the date of transition to IFRS 17, presenting separately the effects arising from changes in classification requirements and those related to impairment requirements.

Given insurance companies will need to collect the information necessary for these disclosures in order to apply the classification overlay, we do not think they represent any additional cost burden over and above the requirements in the IASB's ED.

If you have any questions about this response, please contact the project team at [email protected]

Yours sincerely

Pauline Wallace Chair UK Endorsement Board

Search