FRED 82 – What insurance intermediaries need to know | Deloitte UK has been saved
Financial Reporting Exposure Draft (FRED) 82 amendments represent an important milestone in introducing:
Both include appropriate simplifications and options for IFRS groups to streamline accounting policies.
This blog focuses on the new revenue recognition model under Financial Reporting Standard 102 (FRS 102). It provides practical advice for organisations wishing to get a head start considering the interaction among current reporting, FRED 82 and IFRS 15, and previous industry lessons learned.
Insurance intermediaries that already apply IFRS 15 in their group accounts are likely to be more familiar with the principles for reporting under FRED 82 in their solo accounts, compared to other peers that report under FRS 102 in both their group and solo accounts.
The Financial Reporting Council (FRC) expects to publish the final amendments to FRS 102 in the first half of 2024 with an effective date not before 1 January 2026. Early adoption is expected to be permitted.
Under FRS 102, insurance intermediaries recognise revenue from transactions based on the stage of completion when the amount can be reliably estimated, and it is probable that the economic benefit will flow to the entity.
FRED 82 establishes a five-step revenue recognition that better depicts the transfer of promised services to the customers in exchange for the consideration to which the insurance intermediary expects to be entitled.
The new guidance could accelerate revenue recognition for example, when an intermediary is entitled to contingent or renewal commissions, and there are no further implied or contractual services to be performed in the renewal periods.
The rest of this blog aims to highlight the following practical considerations when implementing FRED 82.
Under current reporting, it was sometimes interpreted that profit and volume-based commissions could not be reliably estimated before they become due.
For detailed guidance and a more comprehensive comparison between FRS 102, IFRS 15 and FRED 82, please refer to our publication.
Given the significant changes resulting from the proposed FRED 82 requirements, companies should be thinking about:
Deloitte is well placed to support you on this journey. Read our detailed FRED 82 guide for further insights and please do get in touch with any questions, if you would like to discuss this further.
Malav Bhagdev is an audit partner in the Deloitte insurance practice, specialising in audit and accounting advice to a range of general insurance companies and insurance intermediaries. Malav has spent significant time leading large and complex global audits, managing specialists and cross-border audit firms. The entities he works with include general insurers, Lloyd’s managing agents and syndicates, and insurance brokers. He has extensive experience in IFRS, UK GAAP, and US GAAP for insurers and brokers, controls, and Sarbanes-Oxley s404 and FCA regulation.
Maria has several years of insurance-specific technical accounting experience. She currently supports the development of the firm views and advises insurance entities on the most complex and pressing IFRS and UK GAAP reporting challenges.
Mehul is a Senior Manager in the Deloitte Audit & Assurance group, with over 10 years of experience in external audit for insurance and investment management industries. Mehul has extensive experience in IFRS, US GAAP, and UK GAAP for insurance intermediaries and asset management clients. He specializes in PCAOB audits, controls and audit automation.