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ASIC sets deadline for new accounting standard

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Insurers must disclose in their December 31 2020 financial reports the impacts of a new accounting standard that will come into effect globally in about two years.

The Australian Securities and Investments Commission (ASIC) announced the deadline last week, outlining a list of matters that insurers are required to consider as they prepare to switch to AASB 17 on January 1 2023.

These include identifying changes to accounting treatments, required system changes, business impacts, impacts on compliance with financial requirements, disclosures required in financial reports prior to the effective dates of the standards, possible continuous disclosure obligations, and the impact on any fundraising or other transaction documents.

“The new standard can significantly affect the reported financial results of many insurers and that insurers should be determining the extent of any impact now,” ASIC Commissioner Cathie Armour said.

“Directors and management of insurers need to plan for the new standard and inform investors and other financial report users of the impact on reported results.”

AASB 17 is issued by the Australian Accounting Standards Board and is based on the International Accounting Standards Boards new IFRS 17 rule.

The new accounting standard represents one of the most significant changes to insurance accounting requirements in more than 20 years. When implemented, insurance contracts will be accounted for in a consistent manner globally, making it easier to compare performance.

ASIC’s list of matters for consideration includes a declaration that insurers must determine how the new rule will impact on future financial reports in a number of areas. These include contracts affected, realistic assumptions related to valuation of insurance contract liabilities, coverage period and deferred acquisition cost assets.

The regulator has also outlined its requirement on disclosure prior to adoption of the standard. It says insurers must provide disclosure in the notes to financial statements known or reasonably estimable information relevant to assessing the possible impact that adoption of the standard will have on the insurer’s future financial statements.

“It is reasonable for the market to expect that quantitative information will be available and disclosed for the reporting date that coincides with the start of the first comparative period that will be affected in a future financial report,” ASIC says. “Information that there will be no material impact may also be important information for the market.”

Click here for more on ASIC’s requirements.