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Firms urged to engage in insurance accounting debate
Accountancy News |
Debate is continuing over how insurance contracts should be accounted for under proposed new UK accounting rules.
From January 1st 2014, the regulatory regime Solvency II comes into force for all insurers.
But there is significant uncertainty as to how life insurers will measure their liabilities in the financial statements once the regulatory rules change.
The International Accounting Standards Board is revising its accounting for insurance contracts and the UK Accounting Standards Board (ASB) is proposing to use this new standard in the longer term.
However, according to Big Four firm PricewaterhouseCoopers (PwC), it may not be finalised by 2014.
The company has warned that there may be a lag of between two and seven years before the new standard is ready, creating uncertainty in the sector.
From 2015, all companies currently using UK Generally Accepted Accounting Practice (GAAP) will have the option of applying the requirements of the new UK GAAP or IFRS.
PwC partner Gail Tucker explained that UK insurers have "vital choices" to make, and should be looking to engage in the debate over insurance accounting standards.
"The outcome of the ASB's approach to accounting for insurance contracts is likely to have a significant influence on whether an insurer will want to stick with UK GAAP or move to full IFRS," she stated.
"Those in the life insurance sector will be particularly affected by these proposals."
Ms Tucker said that, given the delay in the finalisation of the new IFRS for insurance contracts and Solvency II, insurers will not want to find themselves in 'No-Man's Land' until the revised accounting for insurance contracts under IFRS is clarified.
She claimed the next few years could see "a significant impact" on the accounting for insurance contracts and some of the proposed changes may be costly to implement.
"The changes could also result in an increase in diversity in the accounting being used by insurers," Ms Tucker added.
"Stakeholders should get involved to help the ASB find a solution until the final IFRS for insurance is developed."
Posted by Stephen Wilkinson
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