Overview
IFRS 17 (Insurance Contracts) has been described as the most significant change to insurance accounting for a generation, similar in scale and complexity to the implementation of Solvency II in 2016. The Standard will bring the industry closer to a ‘margin’ model of accounting, showing insurance revenues and insurance service expenses separately. This will enable the market to better compare insurers across industries. This reporting change will have a knock-on effect on all parts of a business and introduce a need for new data, systems and ways of working.
The UK banking industry, in particular the large UK retail banks, has invested significant resources to update financial and regulatory reporting for IFRS 9 (Financial Instruments). The shift now moves to embedding the new Standard, and implementing strategic solutions within IFRS 9 modelling to replace tactical ones. Firms are also reflecting on regulatory feedback on their approaches in particular in response to the PRA’s Dear CFO letter issued in April 2019, and in some cases considering changes to their IFRS 9 methodologies.
IA's role
On IFRS 17, IA should consider performing reviews over business readiness for new standards from a project governance, technology and resourcing perspective, including second-order impacts such as investor relations and reward. IA should also consider providing early assurance over technology solutions implemented to improve firms’ reporting capabilities.
On IFRS 9, IA should focus on governance over model and methodology refinements and ongoing operational effectiveness of controls. IA should also consider the following areas in scope, which reflect areas of complexity and/or regulatory focus:
- Sensitivity disclosures.
- Assumptions about customer behaviour (‘behavioural lives’).
- Significant increases in credit risk.
- Post-model adjustments.
- Multiple economic scenarios.
