IFRS 17 should be applied for annual reporting periods beginning on or after 1 January 2021. FRS 17 supersedes IFRS 4 [IFRS 17 C34]. Early adoption is permitted if the entity applies IFRS 9 and IFRS 15 not later than on the date of initial application of IFRS 17. 1 January 2021 is the date of initial application of IFRS 17 unless an entity early adopts IFRS 17 [IFRS 17 C1]. The transition date is the beginning of the reporting period immediately preceding the date of initial application. Therefore, if an entity adopts on 1 January 2021, the transition date is 1 January 2020 [IFRS 17 C2].
An entity should apply IFRS 17 retrospectively from the transition date unless impracticable (see below) and [IFRS 17 C4]:
- Identify, recognise and measure each group of insurance contracts as if IFRS 17 had always applied
- Derecognise any existing balances that would not exist had IFRS 17 always applied
- Recognise any resulting net difference in equity
This means the balances derecognised upon application of IFRS 17 would include balances recognised previously under IFRS 4, as well as items such as deferred acquisition costs, deferred origination costs (for investment contracts with discretionary participation features) and some intangible assets that relate solely to existing contracts. The requirement to recognise any net difference in equity means that no adjustment is made to the carrying amounts of goodwill from any previous business combination [IFRS 17 BC374].
However, the value of contracts within the scope of IFRS 17, that were acquired in prior period business combinations or transfers, would have to be adjusted by the acquiring entity from the date of acquisition (i.e., initial recognition of the contracts) together with any intangible related to those in-force contracts (see ‘Acquisition of insurance contracts’).
Any intangible asset derecognised would include an intangible asset that represented the difference between the fair value of insurance contracts acquired in a business combination or transfer. It would also include a liability measured in accordance with an insurer’s previous accounting practices for insurance contracts where an insurer previously chose the option in IFRS 4 to use an expanded presentation that split the fair value of acquired insurance contracts into two components.
Applying the standard retrospectively means that the comparative period (i.e., the annual reporting period immediately preceding the date of initial application) must be restated and comparative disclosures made in full in the first year of application subject to the exemptions noted below. An entity may also present adjusted comparative information applying IFRS 17 for any earlier periods (i.e., earlier than the annual reporting period immediately preceding the date of initial application). If an entity does present adjusted comparative information for any prior periods, the reference to ‘the beginning of the annual reporting period immediately preceding the date of initial application” (see above) must be read as ‘the beginning of the earliest adjusted comparative period presented.” [IFRS 17 C25-26]
The measurement of fulfilment cash flows (risk-adjusted present value of expected cash flows) in IFRS 17 is prospective. Consequently, the measurement of fulfilment cash flows at the transition date for contracts recognised before that date is a relatively straightforward application of IFRS 17. However, measurement of the CSM, identification of the loss component of the liability for remaining coverage and accumulated other comprehensive income at the transition date (for the purposes of subsequent presentation of revenue and insurance finance income or expenses) depend on past events. These aspects of the measurement and subsequent presentation of contracts in force at the transition date require historical information and make retrospective application of IFRS 17 challenging, particularly for entities that have issued or purchased long-duration contracts for many years prior to transition.
An entity might consider that it would be impracticable to apply retrospective approach where:
- the effects of the retrospective application or retrospective restatement are not determinable;
- the retrospective application or restatement requires assumptions about what management’s intent would have been in that period; or
- the retrospective application or restatement requires significant estimates of amounts, and it is impossible to distinguish objectively information about those estimates that:
- provides evidence of circumstances that existed on the date(s) as at which those amounts are to be recognised, measured or disclosed; and
- would have been available, when the financial statements for that prior period were authorised for issue, from other information.
An entity should apply a modified retrospective approach or fair value approach if it is impracticable to apply IFRS 17 retrospectively for a group of insurance contracts. An entity should use the fair value approach if the modified retrospective approach is impracticable. Transition to IFRS 17 Insurance contracts
An entity should apply a modified retrospective approach or fair value approach if it is impracticable to apply IFRS 17 retrospectively for a group of insurance contracts. An entity should use the fair value approach if the modified retrospective approach is impracticable.
The decision diagram below summarises the transition methodologies: Transition to IFRS 17 Insurance contracts
See the other two approaches: Transition to IFRS 17 Insurance contracts
– Modified retrospective approach Transition to IFRS 17 Insurance contracts
– Fair value approach Transition to IFRS 17 Insurance contracts