Do you know what’s a material change in IFRS 17?

IFRS 17 implementation has made it a lot harder to understand the material impact of an accounting change, a speaker told the Insurance Bureau of Canada’s recent Financial Affairs Symposium.

“We all know the disclosures under IFRS 17 are way more intense than they were under IFRS 4,” Carolyn Ling, senior vice president of finance at ivari Canada, said during a panel discussion. “It’s a lot harder to understand the impact of a change.”

In general, IFRS 17 affected life insurers much more than P&C insurers. For both life and P&C insurers, 2023 Q1 was the first quarter of reporting financial results under the new insurance accounting standard.

In one case, Ling said her accounting teams were trying to determine if an adjustment was material enough to put through.

“I’m trying to do the debits and credits in my head and to be honest with you, it was really hard,” she said. “I used to get a premium, I put the premium up as revenue on my income statements.

“Now it goes into this magic box and I calculate some form of profitability and then it spits something out. And I have to put some of that on the P&L [profit and loss report] and some of that on the balance sheet. How material is that amount that’s going on the P&L?”

Moderator Bobby Thompson, a partner in KPMG Canada’s audit practice, said he also struggles with what constitutes materiality. “Something that could be an absolutely massive error might be a bucket between two liabilities and myself as an auditor, what constitutes materiality?” he asked.

“There’s the materiality from our prudential perspective. Does this impact capital? Does this impact debt but also the users of the financial statements?…”

Ling said it’s important to determine what measures to use for materiality in 2023. “I don’t think the [auditing] firms have landed on that… or at least they’ve not landed on it consistently. For us, we took it right down to retained earnings.”

Thompson asked about training for finance staff, especially new team members. Ling said it’s critical to engage with key finance staff to discuss accounting decisions, and “having that as documentation that will be there and live and breathe.

“You know, ‘We found this mistake, what impact is it going to have? And depending on the time of year cycle, you start having a conversation about how material it is going to be.”

Alice Lumley, chief financial officer of the Canadian branch of Odyssey Re, agreed “proper, formalized processes” need to be put in place. Highlighting resources to use for IFRS 17 implementation is another important factor.

“We don’t have an army of consultants working in-house on this,” she added. “We did borrow a lot from people’s day jobs.”

Ling said IFRS 17 is not only about understanding the technical aspects of the standard, but also the system integration piece – “being involved in a tagging system that has to be maintained. So having people that can get up to speed on that is going to be a challenge as we continue into the future.”

Feature image by iStock.com/AndreyPopov