In called the “Insurance project” in 1997 but it

In
1997, the International Accounting Standards Board (IASB) created a team to
work on what was originally called the “Insurance project” in 1997 but it
actually took 20 years for it to be completed. Now the new insurance accounting
standard IFRS 17 will be in effect for the annual reporting periods beginning
on Jan. 1, 2021. The fact that there was no globally accepted insurance
accounting standard made it very hard for investors and analysts to be able to compare
insurance companies’ which then generated the use “non-GAAP” measures to
evaluate the performance of insurance companies. IFRS 17 creates, for the first
time, a global accounting standard for insurance contracts. It is proposed to
create a reliable framework for the recognition, measurement, presentation and
reporting of insurance contracts. This is supposed to make financial reports more
beneficial and clear because it will offer additional info about the worth of
insurance obligations because these companies will measure insurance contracts
at present value; they show the time value of money in projected payments to
settle sustained claims; and companies will measure their insurance contracts
based solely on the obligations shaped by these contracts. Info about success
is explained more as businesses will have to deliver dependable data on the
components of present and impending profits from insurance agreements. IFRS 17
will be valid also for reinsurance contracts, reinsurance contracts held; and
investment agreements with discretionary contribution features, only if the company
issues insurance contracts too. The General Model for Globalization gives a
formula on how insurance contract assets should be evaluated. This formula relies
on the approximations of future cash flows, the modification for the time value
of money, risk modification for non-financial risks, and contractual service
margin (CSM). CSM embodies the unearned profit for a collection of insurance contracts
that the business will recognize over time as it delivers the amenities. These approximations
of impending cash flows are remeasured each reporting period that means that specific
alterations in anticipated future cash flows are fixed contrary to the CSM and are
then recognized in profit or loss over the residual contract period. Companies are
also given a choice of accounting policy to either show the effects of alterations
in discount rates by putting it in profit or loss or other comprehensive
income. Insurance contract revenue must be then documented in the statement of
comprehensive income as the entity’s consideration for giving the services
under the contracts, and the service expenditures will be documented based on
claims and expenditures sustained throughout the specific period. These revenue
and expenditure quantities discount any non-distinct investment factor. The
insurance companies must then show their results independently of their finance
revenue or expenditures. IFRS 17 demands widespread disclosures to offer
information on the recognized amounts from insurance contracts and the degree
of risks that can happen because of these insurance contracts. Examples of
these disclosures are but are not limited to the reconciliations of the
carrying quantities of insurance contracts from the opening to the closing
balance and with connections among the movements in the liability to the quantities
recognized in the statement of comprehensive income. The new standard will also
force companies to restate comparative info. To recognize the issues in providing
consistent information, these businesses have two different choices for
transition purposes. They can use the modified retrospective approach where generalizations
are permitted or the fair value approach. Using the new standard force
companies to use substantial alterations in the information systems and procedures
they use to create their financial reports, applicable controls, as well possibly
changing the employee that are involved in the accounting processes. It would
be sensible for insurance companies to formulate a comprehensive communications
plan to give investors, market analysts, and stockholders more simplicity to
the alterations to their financial statements and profit profiles. Insurance companies
should start strategizing for how they plan to start implementing IFRS 17.
Impact assessment studies will be able to help these businesses plan those steps,
figure out the amount of energy needed to follow this standard, and describe
the financial impressions that will be made. Insurance companies should not to observe
the IFRS 17 being just like any other expensive governing requirement but look
at the standard as a way to create improved cooperation and collaboration amongst
the Finance and Risk/Actuary departments. The IFRS 17 will be an incentive for
insurance business to fix and reconfigure the state of their forthcoming
financial reporting ways. Deloitte’s global IFRS insurance leader Francesco
Nagari states that IFRS 17 will take much energy to put in effect for companies
but a common international accounting language will permit customers,
investors, and other involved parties to be able to better compare insurance
products across diverse countries. Raj Juta from Deloitte states that
insurance companies should start changing for this new standard quickly because
waiting for them to begin can end in disorder within insurance corporations and
they could realize too late that they are not well equipped to stay on top of
the new rules .However, beside the problems that could occur, it will result in
many paybacks. The IFRS 17 will aid in clients making better choices in their
insurance purchases, particularly when the prices vary considerably throughout
the world. Also, insurance analysts will not have to be bothered much regarding
the varying standards among the different companies in different countries. Lastly,
venture capitalists and other investors can practice IFRS 17 to boost their
portfolios and to choose investments better. Others also suggest that procurement
of master’s degree in accounting can definitely help accounting specialists investigate
into international accounting standards, especially in the
insurance sector.  (IFRS 17 Could
Impact Multinational Insurance Companies, n.d.)

There
are many individuals that are opposing these new insurance rules because Life
insurance and annuities are intricate to begin with, and a change in insurance
accounting rules with brings hurdles such as the fact that companies will need
more facts and figures. IFRS 17, for example, does not directly affect America
but it will effect professionals that are a part of a business in America that
do business with other countries. This means that these accounting professionals
will have to now study and follow the IFRS 17 procedures. These procedures
demand that they must follow all IASB rules. Other issues that will come from
the IFRS 17 accounting rule for insurance will be that the necessities forced
by the IASB that requests substantial amounts of work in terms of dividing
portfolios. IFRS 17 will force individual insurance businesses to divide
portfolios even more in-house to recompense for profit- and loss-making
portfolios which will lead to insurance firms being faced by granular distinction
amongst and within explicit portfolios. Also insurers have to use a specific
measurement model for ever reporting period. This model is to make sure your
reports include discounted cash flows, probability-weighted cash flows, risk
adjustment, and contractual service margins. Then separate their contracts into
three categories such as contracts that are onerous, contracts that carry no
risk of becoming onerous and contracts that don’t apply to either of the first
two categories. (IFRS 17 Could Impact Multinational Insurance Companies,
n.d.) These insurance companies will need additional information technology,
internal controls where means many more people in a trade that has previously
been confronted by cutbacks. ASC 606 forces companies to figure out the impact
the standard would have on the previous fiscal year. For public businesses who have
three years of information they must gauge the influence on two previous years.
Companies must also look over contracts that began numerous years before the
effective state of the new standard and may even have to do dual tracking of
revenues for the retrospective period which will definitely be a time-consuming
and difficult chore. Companies that imagine having alterations amongst
their present revenue accounting and the new method they must use under the new
rule might opt for the full retrospective changeover technique. This is because
revenue will be reflected steadily for every year existing in the financial
statements. Obeying to ASC606 will certainly encompass a widespread renovation
of methods, procedures and controls across all departments of insurance
companies. (ASC 606: Benefits of Early Adoption of the New Revenue Recognition
Standard, n.d.)  Companies are holding
off on adapting to the new standard because they believe that their insurances
policies are under ASC 944 but they do not realize that if they are out of that
scope in the slightest they could still be subject to the rule because there
are revenue streams that do fall under ASC 606. Research shows that IFRS 17 is
going to affect 450 listed insurers who manage 13 trillion dollars in assets.
Baker A study piloted by top 10 accounting firm Baker Tilly Virchow Krause, LLP
showed that 60 percent of insurance corporations are hardly ready to state
using the new auditing standard.  Baker
Tilly’s staff also say that execution of the new standard will disturb a
variation of business functions so it is important that internal resource
restrictions be in place when considering to evaluate and the updated standard.
(Insurance Companies Not Prepared to Implement New Accounting Standards, 2017)Willis
Towers Watson said that these rules will affect the capability to pay dividends
and management bonuses, and meet market-wide performance goals. Even the accounting
firm Deloitte says that the effort of the accountants and companies will create
operation expenses for the insurers.by an estimated three and four billion
dollars for insurers as a whole. (Jones, 2017) This will also lead to companies
needing to hire someone that already has been trained in these types of rules.
Companies will look for future employees with greater education and experience
with more insights into global accounting as well as skills for dealing with
international insurance contracts. As you can imagine, it would be easier
to hire someone from out of the country because they will have greater
understanding. Hiring others from overseas will in turn lead to less jobs for
Americans.  

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To
conclude, both ASC 606 and IFRS 17 have the objective of changing insurance
financial reporting for investors and others so they can better understand
them. The objective of ASC 606 is to create principle ways to report the useful
information to these user in the financial statements regarding the nature and
improbability of revenue from insurance contracts with their customers. While
the IFRS 17 is an international standard for reporting insurance contracts to
help the same people understand the insurers risk level, productivity, and
financial wellbeing. As we can see these rules will lead to more updated and
useful information for users of the financial statements. Obviously we know
this will lead to exponentially more work for companies and accountants because
they will have to make alterations to their operating metrics, data systems,
evaluating specific revenue streams and weighing the need for further internal
controls over financial reporting. (Jacobs, 2016) However, it seems apparent
that these changes will be made because it is worth it for the investors to
feel comfortable enough to financial support these insurance companies. This is
almost the same situation as America not wanting to give up their usage of
Generally Accepted Accounting Principles (GAAP) for IFRS so we can all run on
the same international standards. We know that these changes will have to be
made eventually so adapting to them quickly instead of resisting will make the
change of rules easier for the company in the long run. So many pieces of
business will be affected by these rules and there is so much at stake, so the
sooner a corporation can acclimatize to the new rules, the sooner it can yield
its assets. This process will take time to gain a better understanding but preemptive
businesses will start discussions with auditors and shareholders as soon as
possible to figure out the exact influence there will be on revenue recognition
for their organization.(ASC 606: Benefits of Early Adoption of the New Revenue
Recognition Standard, n.d.) IASB Chairman, 
Hans Hoogervorst, believes that reduced quality accounting has turned
investors away and the benefits of the new rules will compensate costs by a
wide margin and that the improved transparency of the market will definitely
bring enhanced invest ability of the insurance sector. (Jones, 2017)

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