United States

Applying IFRS 9 with IFRS 4


Some companies that issue insurance contracts have expressed concerns about the need to implement two significant changes in accounting on different dates:

  • International Financial Reporting Standard (IFRS) 9, Financial Instruments, which was issued in 2014 and has an effective date of January 1, 2018
  • The new insurance contracts standard, which will replace IFRS 4, Insurance Contracts, and has a later effective date

These companies also have highlighted that potential increased accounting volatility could arise in profit or loss if the new requirements for financial instruments were to be applied before the new requirements for insurance contracts. To address these concerns, the International Accounting Standards Board recently issued amendments to IFRS 4 to introduce two options within IFRS 4 that could be used to address any accounting volatility that may arise:

  • Overlay approach – This option permits entities that issue insurance contracts to recognize in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts standard is issued.
  • Deferral approach – This approach provides an optional temporary exemption from applying IFRS 9 for entities whose activities are predominantly connected with insurance. Such a deferral would be available until 2021. The entities that defer the application of IFRS 9 will continue to apply existing International Accounting Standard 39, Financial Instruments: Recognition and Measurement.

The amendments to IFRS 4 supplement existing options in the standard that already can be used to address the temporary volatility.