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HMRC internal manual

General Insurance Manual

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HM Revenue & Customs
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Accounting framework: International Financial Reporting Standards (IFRS)

Since 1997, the International Accounting Standards Board (IASB) and its predecessor the International Accounting Standards Committee have been engaged in developing an international standard on accounting for insurance contracts. The Corporate Finance Manual (CFM20000) gives more information about accounting standards.

Originally the EU and other jurisdictions set a starting date of 2005 for the new insurance standard, but it was not possible to reach agreement among all the countries involved. The IASB divided the project into two phases. Phase I was concluded with the development of an International Financial Reporting Standard (IFRS 4) on Insurance Contracts, which applies to accounting periods beginning on or after 1 January 2005.

IFRS 4 applies to insurance and reinsurance contracts which an entity issues, and to reinsurance contracts which it holds. The standard

  • defines an insurance contract as one under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder
  • disallows within liabilities provisions for future claims from contracts not entered into at the reporting date, such as catastrophe, equalisation and other statutory provisions (see GIM7290 for the implications of that)
  • lays down rules on making disclosures, and
  • exempts insurers temporarily from some of the requirements of other IFRSs until Phase II is agreed.

Significantly, IFRS 4 requires insurers to continue to use the GAAP approvable in their Home State. This means that the ABI SORP will be of relevance in many areas even though the company adopts IFRS generally. But insurers may adopt new accounting policies if they make financial reporting more relevant without affecting reliability, or more reliable without affecting relevance. They may continue to report liabilities without discounting, but must continue to discount if that is existing practice.

The IASB’s Phase II of the project is expected to introduce a comprehensive new standard for insurance contracts covering the broader conceptual and practical issues related to insurance accounting including, amongst other things, the application of fair value accounting to insurance assets and liabilities.