Significant changes to international insurance accounting standards are expected to have less impact in Australia due to the “best practice” system that already operates here.

On July 30 the International Accounting Standards Board (IASB) published a draft proposal for the improvement of accounting for insurance contracts. It proposes a single International Financial Reporting Standard (IFRS) to be applied worldwide by all insurers to all contract types.

The proposals represent major changes, given the diversity that exists in accounting practices between different countries under existing IFRS standards.

IASB Chairman David Tweedie says the “fundamental” review is long overdue with current financial information “impenetrable to all but the most expert of users”.

Global financial services consultancy KPMG says the “far reaching” changes are likely to have a significant effect on insurance contracts, accounting assumptions and financial statements.

But KPMG Australia Insurance Partner Paul Ruiz told insuranceNEWS.com.au the effect is likely to be less profound in Australia because the local industry already operates many best practice accounting methods.

“The Australian insurance accounting framework is one of the most advanced in the world,” he said. “The rest of the world is finally catching up, and it has taken quite some time.”

Mr Ruiz says while much of the detail is still forthcoming, Australian insurers are likely to notice the effect of several changes including an amendment to the allowance for the deferral of acquisition costs which would be more limited under the proposed changes.

But he says insurers will need to monitor the transitional requirements very closely due to the potential implication for long-term insurance contracts.

The amendments come nine years after the establishment of the IASB in 2001 at a time when no international financial reporting requirements for insurance contracts existed.

IFRS 4 Insurance Contracts was introduced in 2004 as an interim standard while a more comprehensive insurance accounting review was carried out. The latest proposals are the result of that review.

Both the IASB and Financial Accounting Standards Board are working toward convergence around a new model with a paper expected later this year.

The draft is open for comment until November 30.