‘Step up IFRS 17 preps’
PHILLIMON MHLANGA
Zimbabwe’s accountancy profession regulator, the Public Accountants and Auditors Board (PAAB), has urged local companies to expedite the implementation of the new accounting standard which comes into effect next year.
The International Financial Reporting Standard 17(IFRS 17) comes into effect on January 1, 2023, after nearly 20 years of development and will measure insurance contracts.
The standard will replace IFRS 4, which has been in effect since 2005.
“As PAAB, we are seized with the implementation of IFRS 17 with effect from January 1, 2023. We urge all to expedite the implementation of the new standard,” PAAB’s Elles Mukunyudze told a recent KPMG tax, IFRS and business seminar held in the capital Harare.
The underlying aim of IFRS 17 is to make risk transfer contracts more comparable between different entities.
The complex set of IFRS 17, regulates the principles with regard to the identification, method, valuation, reporting and the disclosures for insurance contracts.
By establishing consistent principles for the recognition, measurement, presentation and disclosure of insurance contracts, IFRS 17 represents a new era in insurance accounting.
It does this by combining current measurements of future cash flows with the recognition of profit over the period in which services are provided.
IFRS 4 did not require insurers to identify in a systematic way which insurance contracts profitable or loss making except at a high level that involved significant discretion.
This resulted in different companies offsetting profits on some contracts against losses on others in different ways, making comparisons challenging.
That is one of the new features of IFRS 17: it requires entities to first identify homogeneous risk portfolios then divide these into groups based on their profitability.
It is expected to come with complexities on the financial disclosures and profound operational impacts on all aspects of the companies, meaning that Zimbabwe companies will need to implement significant technical and practical changes to current practices.
They need to completely overhaul their underlying actuarial models, financial reporting processes and systems, and transparency demands within their corporate governance structures, experts told Business Times.
