NZASB issues amendments to NZ IFRS 4 insurance contracts (applying NZ IFRS 9 financial instruments and NZ IFRS 4)
The New Zealand Accounting Standards Board (NZASB) recently issued amendments to NZ IFRS 4 Insurance Contracts, to deal with concerns raised by insurers about the different effective dates of the revised insurance standard (still forthcoming, and post 1 January 2021) and NZ IFRS 9 Financial Instruments (1 January 2018).
Concerns raised include:
- Users of financial statements finding it difficult to understand the additional accounting mismatches and temporary volatility that could arise in profit or loss if NZ IFRS 9 is applied before the new insurance contracts standard
- Preparers having to apply the classification and measurement requirements of NZ IFRS 9 before the effects of the new insurance standard can be fully evaluated, and
- Two sets of major accounting changes in a short period of time could result in significant cost and effort for both users and preparers of financial statements.
As a result, the NZASB has made two changes to NZ IFRS 4 as follows:
- Insurers meeting the criteria in NZ IFRS 4, paragraph 20B can temporarily be permitted (although are not required) to apply NZ IAS 39 Financial Instruments: Recognition and Measurement instead of NZ IFRS 9 for annual periods beginning before 1 January 2021, and
- Insurers are permitted, but not required, to apply the ‘overlay approach’ to designated financial assets. This means that insurers would reclassify between profit or loss and other comprehensive income an amount so that the net impact on profit or loss is the same as if NZ IAS 39 had been applied to designated financial assets.
Please refer to our International Financial Reporting Bulletin for more information on these changes.