United States

Proposal: 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 have 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 published an Exposure Draft, Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts: Proposed amendments to IFRS 4. This Exposure Draft proposes to introduce two options within IFRS 4 that could be used to address any accounting volatility that may arise:

  • Overlay approach – This option would permit entities that issue insurance contracts within the scope of IFRS 4 to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets. This approach would be in place until the new Insurance Contracts Standard comes into force.
  • Deferral approach – This approach provides an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4. Such a deferral would be available until the new Insurance Contracts Standard comes into effect, but could not be used after January 1, 2021.

The Exposure Draft is available for comment until February 8, 2016.