IFRS alert: Applying IFRS 9 with IFRS 4

The IASB has published 'Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’ which makes narrow scope amendments to IFRS 4 'Insurance Contracts' ('the Amendments'). The Amendments provide temporary accounting solutions, for entities that issue insurance contracts, for the practical challenges of implementing IFRS 9 'Financial Instruments' before the forthcoming insurance contracts Standard.

As companies that issue insurance contracts will be affected by both IFRS 9 and the new insurance contracts Standard, there was considerable concern over the practical challenges of implementing these two significant accounting changes on different dates. Further concerns were raised over the potential for increased volatility in profit or loss if IFRS 9's new requirements for financial instruments come into force before the new insurance accounting rules.

To address these concerns while still fulfilling the needs of users of financial statements, the IASB has responded by amending IFRS 4 and introducing the:

• overlay approach - an option for all entities that issue insurance contracts to adjust profit or loss for eligible financial assets by removing any additional accounting volatility that may arise as a result of IFRS 9; and
• temporary exemption - an optional temporary exemption from applying IFRS 9 for entities whose activities are predominantly connected with insurance. These entities will be permitted to continue to apply the existing financial instrument requirements of IAS 39.

See our briefing for more details.