The IASB has published a completed standard on financial instruments accounting – IFRS 9 Financial Instruments (2014). The new standard includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, and supplements the new general hedge accounting requirements published in 2013.
Before insurers reach any conclusions about how they apply IFRS 9, they will want to consider its interaction with the forthcoming insurance contracts standard.
Although the permissible measurement bases for financial assets – amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL) – are similar to IAS 39 Financial Instruments: Recognition and Measurement, the criteria for classification into the appropriate measurement category are significantly different. IFRS 9 also replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ approach.
IFRS 9 will take effect from 1 January 2018, but it can be applied earlier. While the effective date may seem a long way off, insurance companies may benefit from early decisions regarding when and how to transition to IFRS 9 – particularly in terms of evaluating its interaction with the forthcoming insurance contracts standard. An early decision will allow companies to develop an efficient implementation plan and inform their key stakeholders.