Implementing IFRS leads to ambiguous statements

Major global insurers are adapting well to new International Financial Reporting Standards (IFRS) but a PricewaterhouseCoopers survey says many of the financial statements are less clear and harder to follow than before.
The survey titled ‘Reporting under the new regime: A survey of 2005 IFRS insurance annual reports’ reports the resulting ambiguity of new financial statements result from”the experimentation in implementing some of the changes and the different approaches taken in their presentation.”
IFRS are reporting standards that have been adopted by the International Accounting Standards Board (IASB), with the objective of achieving uniformity and transparency in the accounting principles utilized for global financial reporting.
In Canada, IFRS will converge with Canadian GAAP over a transitional period in the next five years. PricewaterhouseCoopers say the statutory move to IFRS is changing how insurers present their business and are judged by analysts, investors and other key users of their accounts.
Philippe Thieren, a partner with PricewaterhouseCooper’s Montral office, says currently the IFRS is still only in Phase I, which means insurers’ still have to make numerous changes in order to harmonize their standard for the valuation of liabilities.
“In future, IFRS will significantly affect the way financial reporting will be carried out by companies in Canada,” Thieren says. “By looking at how others around the world are adapting to the requirements we can better prepare for its implementation.”
With the exception of the valuation of insurance liabilities and the corresponding impact on investment asset classifications, the survey found there was relatively little other diversity in accounting policy. However, PricewaterhouseCooper’s says the survey shows in some cases there is surprising diversity in detailed disclosures.
The survey also found that some areas that were expected to result in considerable financial reporting changes, such as segmental disclosures and disclosures required on insurance risk, and assumptions used, had very little impact.
PricewaterhouseCooper’s specifically notes that almost all of the insurers in the survey identified the expected increase in volatility from the fair valuation of assets and disclosed an alternative measure of profit either within the audited financial statements or within the financial review to mitigate the effect of the volatility.
“Progress in implementing IFRS will be best achieved through close co-operation among insurers and the active engagement of preparers, users and the IASB,” Thieren says. “Canadian insurers and regulators will be keeping a close watch on the developments to ensure that they apply the right methodology in future.”
The findings of this survey underline how important it is for insurers to work together to enhance the clarity, consistency and usability of their financial statements, especially in areas where the new regime leaves insurers substantially free to choose the nature or format of presentation, according to PricewaterhouseCooper’s.
The survey represents 26 large companies, which represent different segments of the industry including life, non-life and bancassurance businesses across a range of countries worldwide. Participating companies represent those that have both already applied IFRS and those that have published year-end financial statements on an IFRS basis for the first time.