LONDON, June 20, 2013 /PRNewswire/ -- Ernst & Young today welcomes the International Accounting Standards Board's (IASB) revised exposure draft Insurance Contracts (the revised ED). The revised ED is part of the IASB's ongoing insurance contracts project and another key step on the road to global consistency of financial reporting by insurance companies.
The Board has put much effort into addressing the issues raised around its previous proposals from July 2010, including major concerns for increased earnings volatility and changes in the presentation of the statement of comprehensive income. Furthermore, the IASB seems determined to complete this project considering today's issues with the existing accounting standard on insurance contracts.
The revised ED has been developed through joint discussions with the Financial Accounting Standards Board (FASB). However, at this stage, there is no expectation that the two Boards ultimately will fully converge on their proposals, and the FASB will issue its own exposure draft shortly.
Implementation model brings broader focus on finance change agenda
David Foster, Ernst & Young Partner and Insurance Finance and Accounting Leader, comments: "The proposals aim to mitigate the potential for earnings volatility, bring consistency and a better understanding of how companies account for insurance contracts. However, these proposals also bring potentially significant operational challenges and introduce more complexity."
Foster adds: "Companies will need to look at the proposed model for insurance liabilities in the context of the broader, shifting reporting landscape. When considered alongside other financial and regulatory reporting changes, and continuing economic and cost pressures, the challenge for finance functions in the coming years will be substantial. While the effective date of a final standard is unlikely to be before 2018, the work needed to prepare should not be underestimated."
Richard Lynch, Chair, Ernst & Young Global Insurance Technical Group, comments: "This may be the last time insurers have an opportunity to comment on the proposals. Insurance companies will need to understand the impact on financials and business operations to provide effective feedback, and help the Board in shaping the final standard. Insurers and users face a huge task in reaching this understanding within the upcoming four-month comment period."
Lynch concludes: "If all goes well, we hope to see the final standard in 2014. And while the IASB has responded to the industry's requirement to allow ample time to implement, companies will need to take advantage of the 'run up' to effectively assess and plan for the changes ahead. In our view, insurers should start looking at the implications now."
For more details about this major milestone, refer to our special insurance accounting alert which will be on: www.ey/insurance.com
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SOURCE Ernst & Young