CLHIA Response to AcSB Exposure Draft on applying IFRS 9 Financial Instruments with IFRS 4 Insurance ContractsRelease Date: 02/08/2016 Staff Reference: Noeline Simon
February 8, 2016
Canadian Accounting Standards Board
277 Wellington Street West
Re: AcSB Exposure Draft ("ED") on Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Proposed amendments to IFRS 4)
Dear Ms Mezon:
The Canadian Life and Health Insurance Association Inc. ("CLHIA") appreciates the opportunity to comment on the question posed in the ED and commends the significant efforts of the Canadian Accounting Standards Board ("AcSB") to work with the International Accounting Standards Board (IASB) to bring about potential solutions for the misalignment in the effective dates of implementing the new insurance contracts Standard and IFRS 9.
The question posed in the ED is as follows:
"The IASB has developed the proposed amendments in accordance with its due process for application around the world. Assuming the Exposure Draft proposals are finalized and approved by the IASB in accordance with its due process, do you think that the proposed amendments are appropriate for application in Canada? If not, please specify which aspects of the proposed amendments, and what circumstances, make the accounting requirements proposed in the Exposure Draft inappropriate."
We appreciate the solutions put forward by the IASB to address the concerns of insurers over separate implementation dates for the two Standards. While CLHIA believes both options (overlay approach and temporary exemption) should be available to prepares, we believe the temporary exemption from IFRS 9 addresses many of the concerns of dual implications of IFRS 9 for insurers and is therefore a more appropriate and practical option for many insurers. However, the highly restricted scope of the temporary exemption option may create an uneven playing field among insurers. We believe it is important to ensure that users have meaningful and comparable financial information among Canadian insurers, especially if they are viewed by the market as entities predominately engaged in insurance activities.
Our response to the IASB identifies a number of problem areas and suggests alternatives and modifications to ensure a level playing field for the temporary exemption for insurers and achieve the objective of providing consistent and comparable financial statements to users (copy attached).
In particular, we highlight the extensive disclosure requirements for insurers who opt for the temporary exemption, which appear to be moving more towards a full reconciliation, contrary to intentions. We believe the disclosure requirements should be more principle based, allowing preparers the flexibility to make judgments as to what is relevant and decision useful information to users.
We urge the AcSB continue its efforts to work with the IASB to provide a workable solution to the concerns over the mismatch in the effective dates of the two Standards, and ensure that the real costs of the final deferral proposals do not outweigh the benefits to Canadian insurers.
Original signed by
Vice President, Taxation and Industry Analytics