- #1: What’s the impact? …
- #2: What do we need versus what do we want? …
- #3: How do we fill the “gap” in our systems, processes, and data? …
- #4: What choices do we need to make in the short term?
Let’s understand IFRS 17
A certified public accountant (CPA) is accounting’s highest standard of proficiency. A CPA is a professional who has written and passed the CPA examination and has been licensed by their state. This license allows the accountant to provide professional services to the public. The CPA must continue to have professional education credits to renew their license.
At what level are cash flows determined? Cash flows are generally identified at the individual contract level but for measurement purposes, contracts may be aggregated. IFRS 17 allows, moreover, the entity to estimate the cash flows at whatever level of aggregation is most appropriate from a practical perspective.
Where the variability in future cash flows follows a uniform distribution, actuaries may conclude that the impact and likelihood of favorable and unfavorable extreme scenarios not explicitly considered in a model may broadly offset each other; however, where the distribution of future cash flows is skewed it may be necessary to adjust the expected value to reflect extreme scenarios not allowed for in the model.
What are the typical types of cash flows to be included?Cash flows referred to in IFRS 17 are primarily payments of cash exchanged between the parties under an insurance contract in accordance with the terms and conditions of the contract. The term “cash flow” can also be used as shorthand for other transfers of economic resources (cash flow equivalents) that are not settled in cash between the parties to the insurance contract. They may also include such items as administration costs, payments to third parties and non-cash transactions such as the provision of goods and services.
What methods are appropriate to estimate expected future internally incurred costs? Estimates of future management costs will usually make use of any forecasts the entity makes including budgets and business plans. Those future unit costs will usually anticipate inflation consistent with the discount rates being used. It is also appropriate to allow for expected future economies (or dis-economies) of scale, consistent with the likelihood of these scenarios and unbiased mean.
How are administration costs that are paid or expected to be paid prior or subsequent to contractual due date handled? The measurement is based on the actual payment date, not the due date, and allows for any consequences of early or late payment (e.g. pre-paid or annualised commissions, interest accreted, penalties charged). If this can be shown to give materially the same result, the measurement could be based on due dates with an approximation of the interest effect to the actual payment date.
The incoming IFRS 17 is like a hybrid of the two most common accounting approaches: the deferral and matching approach and the income statement economic value approach. The principles-based nature of the new standard will require insurers to make many technical and practical decisions that will have significant consequences for both the financial and practical impacts of implementation.
He said: “That might vary depending on whether you’re talking at the holding company level or at the subsidiary level. I think one question companies have to ask themselves is: does IFRS 17 as a metric make sense at a subsidiary level, or can we perhaps use some sort of local accounting standard to help maintain existing accounting at that more subsidiary level?”
When something new comes along, it can be difficult to know where to start and what to prioritise with regards to implementation strategy. Foroughi explained that IFRS 17 is a principles-based standard that allows firms many options and because of that, it’s helpful for firms to work out what the potential business implications might be before finalising any business decisions.
For many insurance companies today, IFRS earnings can be seen as quite a good proxy for dividend paying capacity. According to Foroughi, the fundamental question insurers need to ask themselves goes beyond whether the new standard remains a good proxy for dividend paying capacity, to looking at whether IFRS 17 could impact a firm’s ability to pay dividends.
“The question from an IFRS 17 point of view is: when is our next strategic business review going to happen? There are some firms who’ve already announced they’re going to be doing something like this in the next year or so, and other firms maybe later,” said Foroughi. “For any firm about to do a strategic review, historically IFRS has been one of the key metrics found on virtually every insurance scorecard of monitoring. Firms are going to have to start thinking about whether they should use today’s IFRS or IFRS 17. We’ve already seen some firms doing work behind the scenes to prepare themselves for the new strategy and new metrics, and they’re starting to think about how important the IFRS 17 metric will be moving forwards.”
Are you a commerce graduate? Want to become a accountant professional? Do have wide knowledge in accounting section? Then check on to www.wisdomjobs.com for better prospects. International financial reporting standards are a set of international accounting standards which provide a common global language for business affairs in order to abtain company accounts easily understandable and comparable internationally. It guides the investors to recognize the opportunities and risks globally. As it has become mandatory in India, various financial sectors and business sectors are looking for well qualified candidates fresher’s or experienced with handsome pay. So, candidates who are willing to work as financial analyst, IFRS specialist, system analyst, financial accounting specialist, financial risk manager and many more are offered with the IFRS job interview questions and answers given below.
FAQ
What is the purpose of IFRS 17?
How do you implement IFRS 17?
- Understand IFRS 17 requirements.
- Perform gap analysis (using pre-populated templates where possible)
- Conduct impact assessments around architecture, data, systems and processes.
- Conduct business and technology briefing sessions.
What does onerous mean in IFRS 17?
What is the measurement model used in IFRS 17?
