By Kedibone Pilusa, SAICA Project Director: Members In Business Technical
Johannesburg, 9 October 2020 – The IFRS 17 Insurance Contracts (IFRS 17) standard has been deferred by two years from the initial effective date to now being from annual reporting periods beginning on or after 1 January 2023. This has mainly been due to amendments that were aimed at helping companies implement the standard and make it easier to explain their financial performance. Although the deferral could possibly mean additional implementation costs being incurred, it has been well received by the industry as there was pressure to finalise their systems and the additional time provides an opportunity to parallel run IFRS 17 and note differences and impact from IFRS 4 as well as ensuring the processes are not rushed. SAICA recently hosted an event in this regard and Kedibone Pilusa, SAICA Project Director for Members in Business, shares some of the challenges and insights noted.
One of the main challenges in implementation has been the shortage of resources and skill sets, along with the risk of hiring resources that would be redundant post implementation. The use of consultants has provided an effective solution and they are utilising more technology − that is, systems built and automation with work on policies and methodologies mostly done internally. Systems needs within the industry are unique depending on entity size, with some building new systems and refining whilst others are refining off-the-shelf systems. The industry would ideally like to have a fully automated system for reporting to ensure minimal manual interventions and an effective control system and environment.
The early involvement of auditors is necessary to ensure any queries on the policies or systems are addressed timeously. However, this poses a challenge at times of lengthy ongoing dialogue and debates, given the complexities of the standards. These are being mitigated by internal robust discussions and considerations and bringing in consultants and/or auditors at a stage where a draft policy can be considered. The use of consultants and/or auditors brings about independence considerations as the industry has a small pool with the Companies Act limiting the audit and non-audit services offerings and its requirements on rotations. This challenge is aggravated by the industry having to now consider and plan for the joint audit requirements which the Prudential Authority is in the process of finalising as well as the Independent Regulatory Board for Auditors implementing mandatory audit firm rotation effective from 1 April 2023.
Given demographics of groups and subsidiaries, there is always a concern with head office taking lead of implementation and thus the subsidiaries being left out of discussions. In some instances, this is addressed by ensuring they bring everyone along through subsidiaries having project owners who are part of the policy discussions in an effort to bring alignment.
With IFRS 9 Financial Instruments (IFRS 9) being effective for reporting periods beginning on or after 1 January 2018, the banking industry, which was the most impacted by the standard, had concerns around transitional numbers. This brought about lessons for the insurance industry and there are considerations of ensuring the parallel run for IFRS 17 and IFRS 4 start as early as possible to ensure there is already an analysis of the impact of the changes and also the ability to determine transitional numbers. This also raises a concern around the need for educating business as well as the market on the difference between the two standards and the impact IFRS 17 will have on reporting.
In making communication effective for the market, there is a need to have an idea of what the transitional number will be, as this has an impact on disclosures utilised by the market and also highlights the overall financial impact of the new standard. It was also refreshing to hear that although some KPIs might not be required by IFRS 17, the industry is considering retaining them as they are deemed relevant metrics needed to make financial decisions, an example being the gross written premium.
Transitional numbers impact engagements with SARS for tax consideration purposes, as the numbers are needed to assist National Treasury with amending any legislation. Ideally, communicating these before the budget cycle would assist in ensuring they are factored into any tax legislation amendments prior to the standard implementation date.
With all the changes that the industry has recently went through, from of the new Insurance Act, significant accounting standards being effective, IFRS 9, IFRS 15 Revenue from contracts with customers and IFRS 16 Leases as well as the introduction of conduct standards from regulators, we look forward to a time when the dust settles for the industry to 2023 as well as beyond 2023 when reflecting on the effectiveness of implementation and the actual impact the standard has had on reporting and investor decisions.
The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 50 000 members and associates who are chartered accountants (CAs[SA]), as well as associate general accountants (AGAs[SA]) and accounting technicians (ATs[SA]), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.
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