20 January 2016

FEE comments on IASB's ED "Applying IFRS 9 Financial Instruments with IFRS 4 Insurance contracts"

FEE strongly supports an international solution for issues relating to this misalignment. In its response, FEE proposes some refinements to IASB's proposed approach that FEE considers as necessary to ensure that final standard would address those issues.

FEE acknowledges that, because of the complexity and urgency of the issue to be solved and because any solution will be of a temporary nature, it cannot be expected to be perfect. FEE recognises that decisions need to be made on the trade-off between different objectives. Overall, FEE considers important that any temporary solution ensures, to the extent possible, implementation at reasonable cost. It is equally important that the degree of complexity of any solution does not become a limiting factor for its implementation, audit, and understanding by the users of financial statements.

FEE believes that both the deferral and overlay approach should be optional solutions available in the final standard. FEE wants to stress its support to the Board’s decision to introduce an approach for a temporary exemption from applying IFRS 9 (deferral), as FEE believes that this approach better addresses the concerns raised by a majority of preparers regarding the misalignment of the effective dates of IFRS 9 and IFRS 4.

While FEE supports the notion that the assessment for eligibility for temporary exemption from applying IFRS 9 should be based on the predominant activity, FEE is concerned with the way in which it is proposed in paragraph 20C of the ED. In FEE´s view, the objective of the ED should explicitly state that for those financial instruments that do not relate to insurance contracts and for which it is expected to be a significant impact from implementing IFRS 9 are accounted under IFRS 9.

Generally FEE is in favour of simplification, but FEE believes the conclusion in paragraph BC64, where the IASB proposes a simpler approach to determine whether an entity is eligible to use the temporary exemption from applying IFRS 9, needs to be improved; FEE therefore proposes two adjustments to the way that the predominant test is described in the ED:

Liabilities that are backed by assets that are reported at fair value through profit or loss already under IAS 39 (for which there will be no change under IFRS 9) should be excluded from the calculation;

The denominator should only reflect those liabilities that result from obligation with customers, or in other words to eliminate in the denominator those liabilities that are not directly related to insurance contracts. These include pensions, taxes, deferred taxes, subordinate loans or to some extend derivatives.

FEE´s preferred solution would be to adjust the calculation as proposed above and use an even higher threshold than the ED is proposing for an entity to be eligible to use the exemption from applying IFRS 9. Having said that, FEE would not oppose to another solution that could address this matter, for instance the one suggested by EFRAG. 

Full comment letter on IASB

Full comment letter on EFRAG

© FEE