Insurers – Guidance for audit committees on IFRS®17 implementation

IFRS 17 Insurance Contracts is currently expected to have a mandatory effective date of 1 January 2022. Audit committees need to be active now if they are to provide the strong governance needed to help ensure a robust implementation.

As part of their oversight role during the adoption of IFRS 17, insurers’ audit committees need to evaluate management’s progress towards implementation and assess their external auditors’ readiness to audit financial statements prepared in accordance with IFRS 17.

The Global Public Policy Committee (GPPC) – which comprises representatives from the six largest global accounting networks BDO, Deloitte, EY, Grant Thornton, KPMG and PwC – has published two papers which seek to help insurers’ audit committees fulfil this responsibility.

KPMG has published a quick guide (PDF 127 KB) to the GPPC papers to give audit committees and preparers an overview of the key contents.

A further GPPC paper is planned for publication later in 2020 on the auditors’ response to IFRS 17.  

For most insurers, IFRS 17 represents a major transformation in the way that insurance contracts are accounted for. The extent of change required is significant.

Audit committees of insurers will play an oversight role during the implementation phase and beyond.

Implementation of the new standard will be challenging.

• Increased complexity: Management will need to make technical decisions and judgements that may have a material impact on financial reporting, so audit committees need to be aware of the key implementation issues. 
• Diverse range of approaches and outcomes: Selecting appropriate techniques and developing estimates will involve a high degree of judgement, so it is important that there is strong governance over the way judgement is exercised.
• Time and effort to implement: The shape and content of financial reporting will change for insurers. Implementation programmes may be large, complex and expensive, so audit committees need to be active now.

The GPPC has published a main paper and an accompanying companion paper. Together, these documents pose key questions for audit committees to discuss with management and external auditors.
 

The main paper includes guidance to help audit committees evaluate management’s implementation project and the readiness of the external auditor to audit in the context of IFRS 17. 

It discusses key considerations related to:

• management – including ten questions that those charged with governance might use to focus their discussions with management; and
• the external auditor – including ten more questions for use in these discussions.

The companion paper includes considerations related to key judgements and accounting policy decisions related to the adoption of IFRS 17, and more detailed questions for management in this area . 

If you are an audit committee member and haven’t started already, it’s time to engage.

We encourage insurance executives and board members to read both the main paper (PDF 210 KB) and the companion paper (PDF 329 KB) and consider how to incorporate the recommendations into IFRS 17 implementation plans. Our quick guide (PDF 127 KB) to the paper is available to download.

Visit our IFRS – Insurance contracts hot topic page for an overview of the standard, and our Transition to IFRS 17 page for the latest detail on how implementation challenges regarding the new standard are being addressed.