The Financial Reporting Council (FRC) calls for IFRS 17 disclosures improvements in its recently published IFRS 17 'Insurance Contracts' thematic review.
The review assessed disclosures made by a sample of interim financial statements of ten companies against the requirements of the accounting standard in their first year of application, the accounting body said.
According to the review, FRC has identified several areas for improvement including transition disclosures, specificity and clarity of accounting policies, judgements and estimates and disclosures of choices made in areas where the standard is not prescriptive (such as the choice of transition method, the determination of risk adjustment and discount rates).
The IFRS 17 disclosures improvements that FRC expects include the following.
- Providing quantitative and qualitative disclosures, that are company-specific, enabling users to understand how insurance contracts are measured and presented in the financial statements.
- Ensuring that accounting policies are sufficiently granular and provide clear, consistent explanations of accounting policy choices, key judgements and methodologies, particularly where IFRS 17 is not prescriptive.
- Avoiding boilerplate language while accounting policies should be specific to the company and its business. Policies should be sufficiently granular to enable users to understand the approach taken by the company for each material line of business, and they should give clear, and consistent, explanations of accounting policy choices.
- Providing sufficiently disaggregated qualitative and quantitative information to allow users to understand the financial effects of material portfolios of insurance (and reinsurance) contracts.
- Explaining clearing the impact of transition to IFRS 17, including details of underlying methodology to measure insurance contracts at the measurement date and disclosure of reconciliations of the contractual service margin and revenue by transition method.
- Ensuring alternative performance measures, and any changes to such measures, are adequately explained, not given undue prominence and reconciled to the most directly reconcilable line item in the financial statements.
The FRC said it intends to follow up this thematic review with a similar review of the first set of annual financial statements under IFRS 17 next year.
