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12 January 2017

EFRAG, AIAF, EFFAS and OIC´s summary report on IFRS 16 Leases and Amendments to IFRS 4 Insurance Contracts

EFRAG has published a Summary Report on its joint investor outreach event covering IFRS 16 Leases and the amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts.

Summary of observations on the Amendments to IFRS 4

Participants at the event expressed the following views:

- In general, panel members welcomed the Amendments to IFRS 4 as they reduced the accounting mismatches and volatility in reported results of insurance companies until the full implementation of IFRS 9 and forthcoming IFRS 17 Insurance Contracts.

- Insurers that are eligible for the temporary exemption from IFRS 9 are likely to use it while those that cannot use it are able to opt for the overlay approach. Still, some insurers may prefer the full implementation of IFRS 9 for different reasons.

- For investors, it will be difficult to distinguish economic volatility from accounting volatility if

IFRS 9 is fully applied by insurers before the implementation of the forthcoming IFRS 17.

- Panel members preferred the temporary exemption from IFRS 9 as it solved the issues that arise from the misalignment of the effective dates of IFRS 9 and the forthcoming IFRS 17

Insurance Contracts and, at the same time, simplified the work of preparers and users.

- Panel members noted that IFRS 17 was a long-awaited standard and it was important to have the new standard ready as soon as possible so that investors could work together with insurers to understand what would change with the implementation of both IFRS 9 and IFRS 17.

- panel members noted that the deferral approach was the less costly approach for investors.

Both the overlay approach and full implementation of IFRS 9 would involve additional costs for investors as they would have to change their models twice in a short period of time and understand how the changed requirements for financial instruments and insurance contracts would interact with each other.


Summary of observations on IFRS 16

Participants at the event expressed the following views:

- Panel members noted that IFRS 16 Leases represents a significant change to current accounting practice for lessees and some sectors are going to be more affected than others.

- Some panel members considered that, in general, IFRS 16 was an improvement over the existing accounting as it was going to increase the consistency, relevance and transparency of the accounting for leases contracts. One panel member also noted that it would reduce uncertainty for investors.

- Panel members considered that the lack of full convergence with US GAAP was a drawback of the new requirements. Lack of full convergence meant additional work for analysts as they would have to understand and measure the differences between IFRS and US GAAP.

Full press release

Full report

© EFRAG - European Financial Reporting Advisory Group

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