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Note On Comparison On IFRS 17 and IAS 19

IFRS 17 is the forthcoming standard on insurance contracts that will be effective in 2021, while IAS 19 covers employee benefits. Both rely on diversification of members but have some differences in recognition, measurement, and treatment of risk. IFRS 17 requires insurance contracts to include a risk adjustment and service margin in measurement, while IAS 19 does not include these for employee benefits which are not aimed at generating profits. The standards also differ in their treatment of complex plans and contracts linked to underlying items.

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122 views

Note On Comparison On IFRS 17 and IAS 19

IFRS 17 is the forthcoming standard on insurance contracts that will be effective in 2021, while IAS 19 covers employee benefits. Both rely on diversification of members but have some differences in recognition, measurement, and treatment of risk. IFRS 17 requires insurance contracts to include a risk adjustment and service margin in measurement, while IAS 19 does not include these for employee benefits which are not aimed at generating profits. The standards also differ in their treatment of complex plans and contracts linked to underlying items.

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xinaxula
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Note on Comparison of IAS 19 (Employee Benefits) and IFRS 17 (Insurance Contracts)

IFRS 17 is a forthcoming international financial reporting standard covering accounting for insurance
contracts. It is expected to be issued in the first half of 2017 with effect for reporting periods
commencing on or after 1 Jan 2021.

IFRS 17 excludes employee benefits covered by IAS 19 and share plans covered by IFRS 2.

IAS 19 is the long standing international financial reporting standard for employee benefits, including
defined benefit pension funds.

Given that insurance and pensions are two areas that draw heavily on actuarial techniques it is likely
that comparisons will be drawn between the two standards and in particular to any differences in
treatment of the respective arrangements.

The following table includes some notes on key elements of the two standards and comments on
some of the similarities and differences.

IFRS 17 IAS 19 Comment


Unit of account Insurance contract Applies to employee Broadly consistent. Both rely on
[IFRS 17 – para 3] benefits [IAS 19 – para diversification benefits of a group of
But some elements 2] members or contracts.
refer to portfolio of But most accounting is
contracts. at the plan level

Recognition On commencement of Based on service under Insurance contracts are based on


coverage or due date the plan [IAS 19 – para contractual terms. Employee benefits
for payment by 67, 68 and 61] may be a constructive obligation.
policyholder [IFRS 17 –
para 12]
Measurement Discounted cashflows Discounted cashflows Broadly consistent. See comments on
plus contracted service for defined benefit margins below.
margin (CSM) and risk plans
margin [IAS 19 – para 57]
[IFRS 17 – para 18]
Discount rate Reflect time value of Based on yield on high Arguably the use of yields on HQCB is a
money and consistent quality corporate bonds proxy for the credit risk associated with
with cashflows or government bonds employee benefits, without specifically
[IFRS 17 – para 25] [IAS 19 – para 83] addressing own credit risk
Cashflows Unbiased and market Unbiased and market Consistent.
consistent consistent
[IFRS 17 – para 22] [IAS 19 para 75]
Risk adjustment Includes a risk No risk adjustment or Employers do not seek to generate
and contracted adjustment and a margin. profits from pensions. Adding margins
service margin contracted service to cashflows would defer profits.
margin so no profit at
inception.
[IFRS 17 – para 27 and
28]
Complex and Requires separation of Plans are DB or DC
hybrid components of the based on their
arrangements contract like substance
investment. [IAS 19 para 27]
[IFRS 17 – para 9] No decomposition of
complex or hybrid
plans.
Remeasurement Changes in the discount Assumption and
rate recognised in other experience changes
comprehensive income. recognised in other
Changes in cashflow comprehensive income.
estimates recognised in [IAS 19 – para 120]
P&L.
[IFRS 17 – para 64 and
para 60(i)]
Contracts linked Cashflows measured by No specific guidance on
to underlying reference to underlying adjustments to
items (e.g. items cashflows that are tied
specific assets) [IFRS 17 – para 66] to specific items.

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