GIM2060 - Accounting framework: International Accounting Standards (IAS)

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 contacts. See the Banking Manual (BAM20000) for more information on the background to International Accounting Standards (“IAS”).

Originally the EU and other jurisdictions set a starting date of 2005 for the new insurance standard, but it has not been possible to reach agreement among all the countries involved in the project. In the event, the IASB has 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 for accounting periods beginning on or after 1 January 2005.

IFRS 4 applies to insurance and reinsurance contracts which an entity issues, and reinsurance contracts it holds. It provides a definition of an insurance contract, and exempts insurers temporarily from some of the requirements of other IFRSs until Phase II is agreed. Insurers may adopt new accounting policies if they make financial reporting more relevant and reliable. They may continue to use practices such as measuring liabilities on an undiscounted basis, but may not introduce such practices. IFRS 4 does, however, prohibit catastrophe and equalisation provisions (see GIM7390).

The IASB’s Phase II of the project will introduce a comprehensive new standard for insurance contracts. It will deal with the broader conceptual and practical issues related to insurance accounting and will include amongst other things the application of fair value accounting to insurance assets and liabilities.