PHILLIMON MHLANGA
The majority of companies in Zimbabwe are having difficulty implementing and complying with the international Financial Reporting Standard 17 (IFRS 17) , Business Times can report.
The International Accounting Standard Board (IASB) issued the complicated new standard in January last year, replacing IFRS 4.
On January 1, 2023, IFRS 17 went into effect for annual reporting periods beginning on that date or after.
Previous applications were accepted as long as IFRS 9 was also applied for insurance contracts, which incorporate aspects of both a financial instrument and a service contract.
However, players in the insurance industry, accountants, and actuaries, among others told Business Times that IFRS 17 is more complicated and expensive to implement.
To make matters worse, a number of companies had postponed implementing IFRS 9, which means they will now need to simultaneously embrace two intricate standards- IFRS 17 and IFRS 9- at the same time.
A number of businesses that are listed on the Zimbabwe Stock Exchange (ZSE) claim that IFRS 17 has become a significant obstacle.
The listed firms’ inability to release their financial reports by the deadline of March 31, 2024 was mostly caused by the challenges that the auditors and preparers had in evaluating and implementing IFRS 17.
Ruvimbo Chidora, the group company secretary for Fidelity Life Assurance Zimbabwe (FLAZ) confirmed the complexity the company was facing in applying IFRS 17.
“FLAZ wishes to advise its shareholders and members of the public that the financial statements for the year ended December 31, 2023, will be published on or before April 30, 2024.
“The delay is a result of delays experienced in the application of IFRS 17 and component audit review of the group’s Malawian subsidiary. This change in publication date has been granted by the Zimbabwe Stock Exchange.”
Financial services group, ZB Financial Holdings Limited (ZBFHL), is another company that has delayed the publication of financial results.
Company secretary Tinashe Masiiwa said: “The audited results for the financial year ended December 31, 2023, were due for publication on March 31, 2024, and ZBFHL will delay the publication of the group results.
“The delay is due to the need to finalise and conclude on the audit of certain account balances for the ZBFHL, arising from IFRS 17 adoption. IFRS 17 adoption mainly affects insurance components and for ZBFH these comprise ZB Reinsurance Limited and ZB Life Assurance Company. The extension has been granted by the ZSE to publish the audited results on or before April 30, 2024.”
Yet another company, ZIMRE Holdings Limited (ZHL) also failed to publish results by March 31, deadline due to IFRS 17 challenges related to insurance companies under the group.
These include CredSure, Emeritus, Fidelity Life Assurance of Zimbabwe and WFDR Risk Services.
Group company secretary, Chidora, said: “ZHL wishes to advise its shareholders and members of the public that the financial statements for the year ended December 31, 2023 will be published on or before April 30, 2024.
“The delay is a result of delays in the consolidation of the group insurance companies which are applying the IFRS 17 reporting standard for the first time. The group has applied and been granted this extension by the ZSE.”
Tawanda Chituku, an actuary, has been working with over 15 organizations on the IFRS 17 standard and claims to have never encountered anything “as complex as this standard (IFRS 17)”.
“The modelling journey is quite complex, which requires the classification of contracts, need to structure reporting accounts, changing systems and processes. There is also the issue of determining discount rate, risk adjustment for non-financial risk and issues to do with scoping. Zimbabwe is a very difficult environment,” Chituku said.
A sizable portion of insurance businesses were not complying with IFRS 17 standard, according to Sibongile Siwela, director of insurance at the Insurance and Pensions Commission (IPEC).
This is despite the fact that the local businesses had a dry run last year to evaluate their readiness and level of development.
“We seem to be having challenges,” Siwela said in a terse response to Business Times.
Business Times can report that the majority of companies are still assessing the impact of IFRS 17 or in some cases have not yet begun their assessment.
The standard, according to players, is complicated and has wide-ranging practical ramifications.
The International Accounting Standards Board (IASB) acknowledged that applying the standard “will be challenging” when it recently released information about the resources available to assist with comprehending the new requirements of IFRS 17.
IASB said: “Implementing IFRS 17 represents fundamental changes for some insurers. Many concepts in IFRS 17 are new. It is the first time an IFRS standard has prescribed the measurement of insurance contracts.
“Because insurers currently use local requirements to account for their insurance contracts, they will approach the transition to the new accounting requirements from many different perspectives. Applying the requirements in IFRS 17 will prompt changes in insurers’ operations; for example, many insurers may have to upgrade their data, systems and processes.”
The new standard- IFRS 17 – will measure insurance contracts where losses are expected to be recognised.
IFRS 17 ushers in a new era in insurance accounting by providing uniform guidelines for the recognition, measurement, presentation and disclosure of insurance contracts.
In order to achieve this, it combines the recognition of profit throughout the course of the provision of services with current measures of future cash flows.
Except at a high level involving considerable discretion, IFRS 4 did not require insurers to determine which insurance contracts were lucrative or loss-making in a systematic manner. Comparisons were difficult as a result of several corporations offsetting profits on some contracts against losses on others in different ways.
That is among IFRS 17’s new characteristics. Entities must first identify homogeneous risk portfolios and then group them according to profitability.
This increases the visibility of whether new business , according to the norms of IFRS 17, creates or destroys value.
Zimbabwe’s insurers would need to make substantial adjustments to their current procedures, both technically and practically, as it is anticipated to have complex effects on the financial disclosures made by insurers and to have a considerable operational influence on all facets of the businesses.
Their corporate governance structures, financial reporting procedures and systems, and underlying models all require a comprehensive revamp.
It is anticipated that insurers will report life insurance business income in a different manner. They will not disclose any additional premiums they receive from the life insurance, which will put their finances in jeopardy.
The new regulations are also anticipated to bring about significant changes, such as the elimination of investment income and the allowance for government paper and stocks in the insurer’s total earnings.
Under the IFRS 17 model, insurance contract liabilities will be calculated as the present value of future insurance cash flows with a provision for risk.
Tax difficulties will also result from IFRS 17.
