Ebere Nwoji
The National Insurance Commission,
(NAICOM) has said it will this year intensify effort in preparing
operators for
total adoption of International Financial Reporting System
(IFRS) 17, an advanced of IFRS 4 which the industry had adopted.
The commission also disclosed that it
would more than double efforts so as to ensure that operators are well
prepared ahead of 2022.
Speaking exclusively to THISDAY on the
workings of the IFRS17 and how the commission was preparing grounds for
its full adoption, NAICOM Director Governance, Enforcement and
Compliance, Mr. Barneka Thompson, said the commission would fully adopt
the standards in 2022. He, however, pointed out that intensive
preparation of the operators would commence this year.
According to him, the commission started this preparation since 2017, but on a very slow pace.
Speaking on the difference between the
IFRS 4 and 17, Barneka said, “the degree of change from IFRS 4 to IFRS
17 is very huge and significant and it impacts not only on financial
reporting processes but on every other system great.
“The management information system of
the company, the IT system the actuarial determination and practice of
the company, the internal processes as in process management, the
strategy of the companies the corporate strategy will be modified to
accommodate the degree of change.
Continuing he said, “talking about
financial reporting, both the revenue recognition, measurement will be
significantly impacted and also the degree of disclosure of matters and
reporting on insurance contract will be different, the degree of
analysis that will be required, the data system requirement, the past
and present data and future projected data requirement will be
significant.”
According to him, “it is not just
something that you copy and paste, you do your gap analysis, your
scooping and impact analysis before you commence. “By awareness and
determining what you require to comply with the IFRS 17.
He said some countries started it since
2013, when initially the initiative introductory version was released
until the final releases were made in 2018.
He said the IFRS 17 was not a regulatory
drive, adding that NAICOM has the responsibility as regulator to ensure
that in collaboration with Financial Reporting Council, it ensures that
entities under its supervision conform to protocols signed by federal
government as part of best practice .
He said, “the objective of its
adoption is comparability of financial reporting and reporting of
insurance companies’ accounts across the world.”
“This is what is being issued by the
international accounting standard board and so it is the world’s best
practice aside the US that still uses its GAP,” he added.
He said because of disclosure and reporting aspect of it, “a lot of things are going to be disclosed this year.”
The IFRS 17 is an standard that was
issued by the International Accounting Standards Board in May 2017. It
will replace IFRS 4 on accounting for insurance contracts and has an
effective date of January 1, 2021. In November 2018 the International
Accounting Standards Board proposed to delay the effective date by one
year to January 1, 2022.
Under the IFRS 17 model, insurance
contract liabilities will be calculated as the present value of future
insurance cash flows with a provision for risk. The discount rate would
reflect current interest rates. If the present value of future cash
flows would produce a gain at the time a contract is issued the model
would also require a “contractual service margin” to offset the day one
gain.
The contractual service margin would
amortise over the life of the contract. There would also be a new income
statement presentation for insurance contracts, including a revised
definition of revenue, and additional disclosure requirements.
IFRS 17 will also have accommodations
for certain specific types of contracts. Short-duration insurance
contracts will be permitted to use a simplified unearned premium
liability model until a claim is incurred.
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