THE REPLACEMENT OF IFRS 4 TO IFRS 17 BECOMING EFFECTIVE ON JANUARY 17, 2023. by: Julia Ysabelle Aguilar The International Accounting Standards Board (IASB) published an announcement article on December 19, 2022, declaring that IFRS 17 will become effective beginning on January 1, 2023. The IASB Chair, Andreas Barckow, released a video in which he discussed IFRS 17's objectives and significance. The focus of this article is on the transition from IFRS 4 to IFRS 17 as the new Insurance Contract Accounting Standard. ISSUES OF IFRS 4 ADDRESSED BY IFRS 17 The previous standard, IFRS 4, permits insurers to measure similar insurance contracts in different jurisdictions using different accounting procedures. Nonetheless, the new standard, IFRS 17, establishes standardized criteria for the recognition, measurement, presentation, and disclosure of insurance contracts that fall under its scope. IFRS 17 aims to standardize insurance accounting globally in order to improve comparability, increase transparency, and provide account users with the information they need to comprehend the insurer's financial situation, performance, and risk exposure. IFRS 4 vs. IFRS 17 The main distinction between IFRS 17 and IFRS 4 is the consistency with which revenue recognition and liability valuation accounting treatments are applied. In accordance with IFRS 4, companies could interpret revenue recognition and reserve recognition as they saw suitable. Under IFRS 4, risk adjustment in liabilities is at the company's option; however, under IFRS 17, it is mandatory. CONCLUSION In conclusion, IFRS 17 was introduced to improve the accounting treatment of insurance contracts because of issues with IFRS 4. This indicates that, as a result of IFRS 17, the first comprehensive international accounting standard for insurance contracts, insurers' financial statements are now more relevant, comparable, and transparent. References: IFRS - IASB Chair Andreas Barckow discusses IFRS 17 becoming effective from 1 January 2023. (n.d.). https://www.ifrs.org/news-and-eve nts/news/2022/12/video-insurance- contracts-accounting-standard-beco mes-effective-1-jan-2023/ IFRS - IFRS 17 Insurance Contracts. (n.d.). https://www.ifrs.org/issued-standar ds/list-of-standards/ifrs-17-insuran ce-contracts/ IFRS - IFRS 4 Insurance Contracts. (n.d.). https://www.ifrs.org/issued-standar ds/list-of-standards/ifrs-4-insurance -contracts/ IASB ANNOUNCED IFRS 17 BECOMING EFFECTIVE FROM 1 JANUARY 2023 IFRS 17 IFRS 17 On December 19, 2022 , an announcement article was made by the IASB for the effectiveness of IFRS 17 from 1 January 2023. It released a video in which Andreas Backrow, the IASB Chair, addressed key points of IFRS 17, such as its goals and importance. The video recognizes IFRS 17 as the new Accounting Standard for Insurance Contracts; it replaces IFRS 4 Insurance Contracts. IFRS 17 INSURANCE CONTRACTS ONE accounting model for all insurance contracts in all IFRS jurisdictions. IF1R7S WHEN? January 1, 2023 mandatory effective date of the new Standard. WHO WOULD BE AFFECTED BY THE IFRS 17 applies to insurance contracts. IFRS 17 CHANGE? affects any company that writes insurance contracts, such contracts are generally not written by companies outside of the insurance industry. An entity shall apply IFRS 17 Insurance Contracts to: [IFRS 17:3] Insurance contracts, including reinsurance contracts, it issues; Reinsurance contracts it holds; and Investment contracts with discretionary participation features it issues, provided the entity also issues insurance contracts. OBJECTIVES Under IFRS 17, insurance contracts will: Reflect fundamental economic issues and provide relevant and transparent information as well as updated assumptions, options, and guarantees Increase transparency about profitability by defining the source of earnings listed in the income statement and splitting contracts into groups or cohorts based on sets of criteria. Increase comparability among insurers, subsidiaries, and industries. FUNDAMENTAL DIFFERENCES BETWEEN IFRS 4 Profit recognition will be shown at the start of the contract. Revenue includes premiums and may include an investment component . IFRS 17 Upfront revenue recognition is not permitted. Mandatory early recognition of losses on onerous contracts. Revenue excludes any investment component and represents the reduction of the liabilities held as the entity provides insurance services and and respective risk is released. Reinsurance is calculated on a net basis. Reinsurance is calculated separately. Discretion in determining the separation of components. Separation of components is required only if distinct. PROPOSALS THAT CREATE COMPREHENSIVE GLOBAL BASELINE OF SUSTAINABILITY DISCLOSURES ARE DELIVERED BY THE ISSB by: Julia Ysabelle Aguilar The newly constituted International Sustainability Standards Board (ISSB) released two drafts of the IFRS sustainability Disclosure Standard (ISDS) for public consultation on March 31, 2022. The first standard addresses general disclosure requirements relating to sustainability, while the second focuses climate-specific disclosures. Previously, organizations and stakeholders have had trouble navigating the numerous sustainability requirements, frameworks, and measurements. ISSUES AND OBJECTIVES International investors with global investment portfolios are increasingly demanding high-quality, transparent, reliable, and comparable reporting by companies on climate and other environmental, social, and governance (ESG) issues. The core disclosure objective in the standard is to require entities to disclose “information about its significant sustainability-related risks and opportunities that is useful to the primary users of general purpose financial reporting when they assess enterprise value and decide whether to provide resources to the entity”. SYNOPSIS IFRS Sustainability Disclosure Standards are created and approved by the International Sustainability Standards Board (ISSB), a private sector organization that is independent (IFRS SDS). The chairman of the ISSB, Emmanuel Faber, highlighted three critical points that comprise the framework of the entire consultation article. First, proposals were developed in response to G20 leaders', the International Organization of Securities Commissions' (IOSCO's), and others' requests for increased transparency from businesses regarding sustainability-related risks and opportunities. Second, they fully include industry-specific disclosure requirements derived from SASB Standards and build upon the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). In close collaboration with other international organizations and jurisdictions, the ISSB is also actively promoting the inclusion of the global baseline into national regulations. CONSULTATION Over the duration of a consultation that lasts 120 days and concludes on July 29, 2022, the ISSB is looking for feedback on the ideas. It intends to release the revised Standards by the end of the year, subject to reaction, after analyzing feedback on the proposals in the second half of 2022. CONCLUSION The objective of public consultation is to create an inclusive approach to setting standards. It aims to include all relevant parties in the development process and to consider their views. The comments will determine whether these standards are relevant, efficient, and interoperable. It is recommended that every stakeholder participate in the consultation in order to obtain more detailed comments. References: IFRS - ISSB delivers proposals that create comprehensive global baseline of sustainability disclosures. (n.d.). https://www.ifrs.org/news-and-eve nts/news/2022/03/issb-delivers-pro posals-that-create-comprehensive-g lobal-baseline-of-sustainability-dis closures/ IFRS - International Sustainability Standards Board. (n.d.). https://www.ifrs.org/groups/interna tional-sustainability-standards-boar d/ ISSB DELIVERS PROPOSALS THAT CREATE COMPREHENSIVE GLOBAL BASELINE OF SUSTAINABILITY DISCLOSURES On 31st March 2022, the newly formed International Sustainability Standards Board (ISSB) published two draft IFRS sustainability Disclosure Standard (ISDS) open for public consultation. TWO IFRS SUSTAINABILITY DISCLOSURE STANDARD (ISDS) general sustainability-related disclosure requirements climate-related disclosures. ISSUE Businesses and stakeholders have had difficulty navigating the wide variety of sustainability standards, frameworks, and measurements. The demand for high-quality, transparent, dependable, and comparable reporting by firms on climate and other environmental, social, and governance (ESG) issues is growing among international investors with global investment portfolios. OBJECTIVE To disclose information about its significant sustainability-related risks and opportunities that is useful to the primary users of general purpose financial reporting when they assess enterprise value and decide whether to provide resources to the entity. 3 KEY POINTS Emmanuel Faber, the ISSB chairperson, stressed three crucial elements: Proposals 01. were created in response to requests for improved transparency from firms on sustainability-related risks and opportunities made by G20 leaders, the International Organization of Securities Commissions (IOSCO), and others. 02. 03. They completely include industry-based disclosure requirements developed SASB build on the Task Force on Standards recommendations and of the from Climate-Related Financial Disclosures (TCFD). The ISSB is actively supporting the incorporation of the global baseline into jurisdictional requirements by collaborating closely with other international organizations and jurisdictions. CONSULTATION Over the course of a consultation that lasts 120 days and ends on July 29, 2022, the ISSB is looking for feedback on the proposals. Subject to the response, it plans to release the new Standards by the end of the year after reviewing feedback on the proposals in the second half of 2022. CALL FOR FEEDBACK The feedback will determine how relevant, efficient, and interoperable these standards are. To get more thorough feedback, it is advised for every stakeholder to engage their opinion during the consultation. UPDATE ON THE ONGOING COLLABORATION BETWEEN ISSB AND GRI by: Julia Ysabelle Aguilar The IFRS Foundation and the GRI declared their intention to work together on March 20, 2022. Working together to coordinate their respective work plans and standard-setting initiatives, the International Sustainability Standards Board (ISSB) and the Global Sustainability Standards Board (GSSB) have signed an agreement to do so. In order to put the Memorandum of Understanding between the Global Reporting Initiative (GRI) and the International Sustainability Standards Board (ISSB) into action, technical representatives from both organizations met in May of 2022. MEMORANDUM OF UNDERSTANDING The Memorandum of Understanding is the most recent step in efforts to integrate or harmonize numerous international sustainability reporting programs into a more cohesive approach for the benefit of corporations, investors, and society. The GSSB will collaborate with the ISSB to establish an universal standard for sustainability information provided to capital market investors. Both organizations will participate in each other's consultative bodies for sustainability reporting as part of this collaboration. The technical representatives from the two organizations suggested potential initiatives that could result in essential clarity and alignment. Among the initiatives were: ● An agreed schedule of meetings and roadmap to advance technical aspects of the collaboration. ● A mapping exercise to establish those requirements in the ISSB’s General Requirements and Climate Exposure Drafts that are equivalent with GRI Standards in order to guide an exercise on alignment of disclosures, guidance, concepts and definitions. ● A comparison exercise of ISSB’s General Features and Qualitative Characteristics of Information in the General Requirements Exposure Draft with GRI 1: Foundation, to identify scope for alignment or explanation of differences. ● The development of a methodology to cross-reference between guidance and other materials produced by GRI and ISSB respectively in order to maximize usefulness to preparers of information. IMPORTANCE By collaborating, the IFRS Foundation and GRI offer two 'pillars' of international sustainability reporting: a first pillar representing investor-focused capital market standards of IFRS Sustainability Disclosure Standards developed by the ISSB, and a second pillar of GRI sustainability reporting requirements set by the GSSB, compatible with the first and designed to meet the needs of multiple stakeholders. According to GRI CEO Eelco van der Enden in a press statement, the MoU sends “a strong signal to capital markets and society that a comprehensive reporting system, which combines financial and impact materiality for sustainability reporting, is possible on a global scale. Emmanuel Faber, Chair of the ISSB, succinctly summed up the benefits of alignment by saying, “using the standards set by the ISSB and GSSB together will offer a complete and compatible suite of sustainability disclosures.” CONCLUSION The agreement demonstrates the significance of establishing consistency and interconnection between investor-focused baseline sustainability information that satisfies the requirements of the financial markets and information designed to fulfill the requirements of a wider set of stakeholders. The IFRS Foundation and the Global Reporting Initiative (GRI) have acknowledged the strong public interest in coordinating their work programs, terminology, and guidance wherever possible to lighten the reporting load for businesses and further harmonize the international sustainability reporting landscape. References: IFRS - ISSB and GRI provide update on ongoing collaboration. (2022.). https://www.ifrs.org/news-and-eve nts/news/2022/06/issb-and-gri-prov ide-update-on-ongoing-collaboratio n/ GRI - IFRS Foundation and GRI to align capital market and multi-stakeholder standards. (n.d.). https://www.globalreporting.org/ne ws/news-center/ifrs-foundation-and -gri-to-align-capital-market-and-m ulti-stakeholder-standards/ UPDATE ON THE ONGOING COLLABORATION BETWEEN ISSB AND GRI Y A M 202 0 Technical representatives from the Global Reporting Initiative (GRI) and the International Sustainability Standards Board (ISSB) gathered to start implementing the Memorandum of Understanding (MoU). INI TI AT I VES An agreed schedule of meetings and roadmap to advance technical aspects of the collaboration A comparison exercise of ISSB’s General Features and Qualitative Characteristics of Information in the General Requirements Exposure Draft with GRI 1: Foundation, to identify scope for alignment or explanation of differences. DISC U SSED: A mapping exercise to establish those requirements in the ISSB’s General Requirements and Climate Exposure Drafts that are equivalent with GRI Standards in order to guide an exercise on alignment of disclosures, guidance, concepts and definitions. The development of a methodology to crossreference between guidance and other materials produced by GRI and ISSB respectively in order to maximize usefulness to preparers of information. An examination of future priorities to maximize joint standard-setting and guidance development activities, where the same or similar information requirements exist. The development of a full articulation of the ways in which the standards developed by GRI and ISSB respectively are complementary or diverge, together with explanations. GRI staff outlined initial directions of their proposed feedback to the consultation by the European Financial Reporting Advisory Group (EFRAG) on the EU Sustainability Reporting Standard (the GRI response subsequently published on 20 June). Impor t an e c TOGETHER, THE IFRS FOUNDATION AND GRI OFFER TWO "PILLARS" OF INTERNATIONAL SUSTAINABILITY REPORTING: PI 1 ST L R A L N 2 representing GRI sustainability reporting requirements established by the GSSB, compatible with the first and intended to satisfy the needs of multiple stakeholders representing investorfocused capital market standards in the form of IFRS Sustainability Disclosure Standards created by the ISSB D PILLAR Eelco van der Enden GRI CEO As stated in the press release, the MoU sends “a strong signal to capital markets and society that a comprehensive reporting system, which combines financial and impact materiality for sustainability reporting, is possible on a global scale. Emmanuel Faber, Chair of the ISSB, succinctly summed up the benefits of alignment by saying, “using the standards set by the ISSB and GSSB together will offer a complete and compatible suite of sustainability disclosures.”
