IFRS 17 : a comparison with IFRS 4 and an analysis of the impact of its application.

Details

Supervisors

Yvan Stempnierwsky

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion (Mons)

Abstract

This thesis has been thought because the arrival of the new IFRS 17 is a revolution in regard to the way of accounting for insurance contracts. It has a clear objective of requiring more in that sense, with models that are defined in a much more precise manner and allow for a better understanding of the financial statements that are presented with insurance contracts (and the rest of the items in scope) in them. It will be focused on the general model which encompasses most of the key concepts and is the one the others are derived from. The studied problematic doubles down from the explanation above : Can it be expected that the new standard is really a solution to the problems of quality of information it is supposed to solve and what can we expect in practice from the impacted entities, in order from them to implement the new standard in an effective manner? This is a recent topic that is sufficiently complicated to be studied even though the fact that it is not applied yet clearly limits the possibilities (see the last part of the thesis). The analysis that I have conducted is centered around studying literature from the IASB as well as other organizations that have a relevant and useful insight on the topic to determine whether the standard is really as much of a miracle solution as it is supposed to be or not, as well as the practical impacts and solutions, implementation wise. This literature being usually broad documents at a multinational scale or bigger (example : big four documents or EIOPA), I have tried to confront my findings with opinions of professionals at a “lower” level to see whether it was adapted to their knowledge in practice (beside workers in insurance companies which are mostly helped by consulting firms to tackle the problem and for which I had an international survey of secondary data that was more useful than one or two small interviews on these topics). The confrontation of those elements has allowed me to get these conclusions : • The new standard is by far an amelioration in comparison with IFRS 4 but it has a number of flaws that are mostly linked to the leveraging that is let in IFRS standards. Correct explanations will be required but the deepness of those will depend on what the stakeholders of the entities expect and what they will deem necessary. • The practical changes will be broad and affect anyone in the insurance landscape, not just the financial professionals but it is possible to find solutions that will be helpful like Solvency II which resembles IFRS 17 despite some differences, which are discussed in the chapters of this master’s thesis and in the interviews. The results are mostly qualitative, no numbers in terms of impact on the financial analysis of insurance companies and other affected entities are available yet to determine a figured impact on debt, revenue, cost or whatever elements that can arise from the application of the standard.