The vice-chair of the International Accounting Standards Board (IASB) has warned of a pressing need to finalise the board’s new rule book for insurance accounting over fears of ‘hidden asset’ risks.
Sue Lloyd’s comments came ahead of a vote by the board last week to delay the effective date of its new insurance contracts accounting rule book International Financial Reporting Standard 17 (IFRS 17) by one year. The board planned to use the breathing space to decide how it would respond to requests for amendments to the standard.
Lloyd told the board’s 14 November meeting that calls for the IASB to delay the standard and contemplate a list of possible amendments had come at a time when concerns were growing that insurers were carrying hidden asset risks.
She said: “We are hearing at the moment that there is a decrease in the quality of assets being held by insurers around the world in the chase for yield, so this gap in the [expected credit loss] information is something that we can’t be blind to.”
Lloyd added that, although insurers who have deferred IFRS 9 – which relates to financial instruments – must make disclosures about “credit risk concentration and some information about fair values for things that are own credit risk”, they were not required to make disclosures about expected credit losses.
She warned: “It is a massive mismatch between what we require of the banks and the insurers, and I think we create risks that there will be incentives for banks to sell lower-quality assets to insurers, which isn’t in the market’s interests, so I think it is important to keep it at a one-year deferral because of that link to IFRS 9.”
Despite the support for the delay among the board members, IASB member Nick Anderson said the vote would frustrate investors.
He said: “Let’s not forget we have user stakeholders as well. We only seem to be talking about preparer stakeholders. Users are incredibly frustrated by the suggestion of any further delay to the standard.”
Project manager Andrea Pryde said the IASB aimed to finish the project “within a period of a year, plus or minus six months”.
The IASB has found itself at the heart of a major lobbying battle over the new insurance IFRS. Last month, a group of global insurance industry lobby groups wrote to the IASB chairman, Hans Hoogervorst, urging the board to delay implementation of the new standard by a period of two years.
At the same time, however, three leading European regulators contacted the president of the European Financial Reporting Advisory Group (EFRAG) warning against any delays in endorsing the new IFRS.
FRC’s 2019 priorities
The UK Financial Reporting Council (FRC) has unveiled its 2018-19 audit inspection priorities for the upcoming reporting year.
In a statement , the FRC said it had identified a number of business sectors to probe – among them retail, financial services and construction.
The FRC also selected the auditing of management’s assessment of going concern and impairment as topics warranting closer review.
The audit watchdog’s priorities reflected concerns that have emerged in recent UK corporate reporting scandals such as BHS and Carillion.
Earlier this month, the FRC released the findings of its thematic reviews of revenue and financial instruments accounting. The reviews focused on interim accounts filed by a sample of companies during the month of June.
Among the areas singled out for improvement were disclosures about expected credit losses under IFRS 9, which came into force on 1 January this year.
The current reporting year represents the first full financial year during which the new standard will have applied.
Bowles continues grilling government on accountancy conflicts
Sharon Bowles, former MEP and now a member of the House of Lords, the UK parliament’s upper chamber, has tabled a further round of questions dealing with potential conflicts of interest between the government and the accountancy profession.
Her latest questions focused on the membership of the business department’s external stakeholder group, which advises the government on the law as it relates to International Accounting Standards.
EFRAG membership confirmed
Finally, EFRAG’s general assembly has named the 15 members of the new European Corporate Reporting Lab’s steering group.
The appointments include one British member, Jason Mitchell, described as a user of financial information.