Australian insurers’ conservative approach when making provisions for bad debt means they have dodged the worst of a new international standard on financial reporting.

The standard on financial instruments, released by the London-based International Accounting Standards Board last week, completes a project begun in 2008 in response to the financial crisis.

The standard – IFRS9 – which dictates how insurers account for impaired assets, may have a significant impact on companies globally.

But KPMG Asia-Pacific Insurance Leader Scott Guse says it “confirms that Australian insurance accounting has led the world, with its emphasis on… fair-valuing insurance contract liabilities and financial instruments”.

The standard takes effect in 2018 and may coincide with the introduction of IFRS4 on insurance contracts, although Mr Guse told insuranceNEWS.com.au the latter might be delayed.

Under IFRS7 insurers can continue mitigating fair-value movements through their profit and loss accounts, but the standard can also give them options that would bring more volatility to the accounts.

The extent of volatility will depend on how assets are matched to liabilities.

“The initial difficulty for insurers is they have to plan for adopting new standards on both financial instruments and insurance contracts over the next few years, but the overall effect can’t be assessed until the insurance standard is finalised over the next 12 months,” Mr Guse said.

“This could potentially be problematic and needs careful consideration.”