Impacts of IFRS 17 to insurance companies in Finland
Kakko, Markus Kristian (2022)
Kakko, Markus Kristian
2022
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2022101421228
https://urn.fi/URN:NBN:fi:amk-2022101421228
Tiivistelmä
Insurance companies are facing a considerable change in accounting practices as a consequence of the implementation of IFRS 17. IFRS 17 is effective from the 1st of January, and it will bring fundamental changes to insurance accounting. The standard will replace the older standard guiding insurance accounting, the IFRS 4. Currently, a comprehensive standard for insurance accounting does not exist, as IFRS 4 was designed as an interim standard, which was meant to stay in practice until the publishment of its successor.
The new standard will bring changes to, inter alia, the measurement and recognition of insurance contracts, which are the main focus points in this thesis. In addition, the impact to profit and loss statement is evaluated due to the nature of the measurement models, which introduce the Contractual Service Margin (CSM), a term introduced by IFRS 17.
Implementation of the research has been carried out in two phases. First, the research focused on pinponting the main differences in the measurement and recognition through an example of a Finnish company, who has prepared their financial statement under IFRS 4. The profit and loss statement has then been compared and explained through examples, allowing the reader to understand the magnitude of the change. Second, the research aimed to find the common concerns companies have about the standard and evaluate whether or not companies see IFRS 17 as an improvement. The second phase of the research was performed through a qualitative research and in particular, a content analysis. Content analysis allowed the research to be performed to a vast, international target group, including stock companies from all over the world, leading to a very broad range of opinions. Comment letter were adressed to the exposure draft published by the IASB. The comment letters of the target group were analysed to find similarities and differences in opinions.
The research shows that companies have a significant amount of concerns related to the standard. Opinions on whether or not the IFRS 17 is an improvement to the current standard and will improve comparability are very divided. The common areas of concern were related to measurement during transition and the level of aggregation. Typical to exposure drafts, the IASB presented questions for companies to address. However, the feedback was not limited to the questions as companies had concerns in other areas as well.
Regarding comparability, the research came to a conclusion that while the current version of the standard may not increase comparability next year, or even the year after, the universal standard will eventually increase comparability in the financial statements of insurance companies.
The new standard will bring changes to, inter alia, the measurement and recognition of insurance contracts, which are the main focus points in this thesis. In addition, the impact to profit and loss statement is evaluated due to the nature of the measurement models, which introduce the Contractual Service Margin (CSM), a term introduced by IFRS 17.
Implementation of the research has been carried out in two phases. First, the research focused on pinponting the main differences in the measurement and recognition through an example of a Finnish company, who has prepared their financial statement under IFRS 4. The profit and loss statement has then been compared and explained through examples, allowing the reader to understand the magnitude of the change. Second, the research aimed to find the common concerns companies have about the standard and evaluate whether or not companies see IFRS 17 as an improvement. The second phase of the research was performed through a qualitative research and in particular, a content analysis. Content analysis allowed the research to be performed to a vast, international target group, including stock companies from all over the world, leading to a very broad range of opinions. Comment letter were adressed to the exposure draft published by the IASB. The comment letters of the target group were analysed to find similarities and differences in opinions.
The research shows that companies have a significant amount of concerns related to the standard. Opinions on whether or not the IFRS 17 is an improvement to the current standard and will improve comparability are very divided. The common areas of concern were related to measurement during transition and the level of aggregation. Typical to exposure drafts, the IASB presented questions for companies to address. However, the feedback was not limited to the questions as companies had concerns in other areas as well.
Regarding comparability, the research came to a conclusion that while the current version of the standard may not increase comparability next year, or even the year after, the universal standard will eventually increase comparability in the financial statements of insurance companies.