The International Financial Reporting Standards, IFRS, 17 is a series of accounting pronouncements published by the International Accounting Standards Board (IASB) to help preparers of financial statements, throughout the world, and in Nigeria.
Already the Financial Reporting Council, FRC, says its implementation starts January 1, 2023. YEMISI IZUORA, in this report looks at Nigeria’s insurance industry preparedness in this regard.
Last week in Lagos, the National Insurance Commission (NAICOM), took a deserving and exemplary step with the activation of the machinery towards the unveiling of the new International Financial Reporting Standard 17 (IFRS 17) for Insurance Contracts.
In the opinion of stakeholders it was the most auspicious moment to rally operators to appreciate the reality of a new set of application that will change the old ways of doing things.
The regulator, is meticulously repositioning the industry to be top contenders at the global space.
Already, the International Accounting Standard Board (IASB) has since May 2017 given a new directive on IFRS 17 Insurance Contract as a replacement for the current IFRS 4 .
The Financial Reporting Council, FRC, has also said it is getting its constituents ready for IFRS 17 which will be effective for annual periods beginning on or after January 1, 2023.
During a stakeholders convergence with the titled, ‘Stakeholders interactive forum with FRC and International Accounting Standards Board webinar,’ the Deputy Director/ Head, Directorate of Accounting Standards Public Sector, Dr Iheanyi Anyahara, informed the gathering that on 28 May 2020, the IASB issued amendment to IFRS 16, COVID-19 related rent concessions which is effective for annual periods beginning on or after 1 June 2020.
The meeting was part of efforts by the Council to prepare its constituent for IFRS 17, insurance contracts which will be effective for annual periods beginning on or after 1 January 2023 after the standard was amended on 25 June 2020 to defer its effective date.”
He said the programme was organised in collaboration with IASB as an interactive session to deepen the knowledge on the application and implementation of IFRS 9, 16 & 17 in financial institutions in Nigeria.
Anyahara said that the Council was aware that implementing IFRS 17 commanded a radical departure from current accounting standards and produces complex operational challenges.
“That is why we are organising this programme and many more in collaboration with IASB to guide the users of the standards both in application and implementation,” he said.
He said the Council would be organising more events in financial reporting, auditing and corporate governance in order to sensitise the general public and lessen the knowledge gap in IFRS standards in Nigeria, in collaboration with relevant agencies and organisations.
He mentioned that IFRS 16 was effective for annual reporting periods beginning on or after 1 January 2019 with earlier application permitted.
The main aim of the standard was to report information that faithfully represented lease transactions and provided a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases, he said.
He said the new standard required lessees to recognise nearly all leases on the balance sheet which would reflect their right to use an asset for a period of time and the associated liability for payments.
Understanding FIRS 17
It may not be a surprise that many Nigerians do not understand the meaning of International Financial Reporting Standards (IFRS), even though the insurance industry parades a galaxy of professionals, nonetheless, NAICOM is not taking anything for granted. It is poised to transform the industry to standard and compete globally.
Alistair Impey, a partner at PwC who spoke to Business Day Newspapers on issues relating to International Financial Reporting Standards (IFRS) and the NASB, provided a clear understanding of the procedure and professionally covered more grounds to the understanding of the public.
Mr Impey a partner in charge of our Consumer, Industrial Products and Services group, described International Financial Reporting Standards (IFRSs) as a series of accounting pronouncements published by the International Accounting Standards Board (IASB) to help preparers of financial statements, throughout the world, produce and present high quality, transparent and comparable financial information.
The term “International Financial Reporting Standards (IFRSs) and interpretations approved by IASB and International Accounting Standards (IASs) and interpretations issued by IASB’s predecessor, the Board of International Accounting Standards Committee (IASC). Currently, financial statements prepared for reporting in Nigeria are drawn up in accordance with requirements laid down by CAMA and pronouncements issued by the Nigerian Accounting Standards Board.
These Nigerian requirements are, in most cases based on pronouncements issued in the past by the IASB, but are not necessarily fully aligned with the current pronouncements of the IASB (for example certain financial instruments are required to be measured and reported at their fair value under IASB guidelines, whereas under Nigerian requirements these might be measured at historic cost, if any).
He said that if IFRS were to be adopted in Nigeria , Nigerian reporting entities would be using the same reporting framework as their peers worldwide which would enhance the relevance of their reports in the international arena.
However, the greater precision of IFRS would improve the comparability of reports between different entities in Nigeria and could act as a catalyst to further develop the quality and transparence of financial reporting in the country.
Perhaps in Nigeria, national accounting standards (SASs) are partly based on old IAS, some of which have since been amended or withdrawn by IASB, whereas the local standards do not cover all the aspects of financial reporting encountered by preparers of financial statements.
Oriental News Nigeria understands that Nigeria’s standards are partly out of date and are not sufficiently comprehensive to form a basis for preparation of high quality financial statements.
PricewaterhouseCoppers network of firms, have been long proponents of a single set of high quality, global accounting standards for one simple reason our markets are global and it is important for those markets to operate under a single, principle-based language.
In the recent past, many countries in Africa , as well as the European Union countries have adopted IFRS as the financial reporting framework for their public interest companies. The Financial Accounting Standards Board (FASB) of the US has already agreed a roadmap with the IASB on the convergence of US standards and IFRS. This is recognition by large economies of the need to have high quality standards that are used consistently around the world to improve the efficiency with which capital is allocated.
Imprey, is of the opinion that there is an urgent need for NASB to start a debate on the convergence of local standards with IFRS. The convergence could be in the form of a comprehensive review and revamping of the SASs to fully comply with IFRSs, or a full adoption of IFRS as the financial reporting framework for Nigeria . This process has already started as the NASB has issued a number of Exposure Drafts in recent months to update and improve Nigerian reporting requirements.
This effort is continuing and Nigeria cannot afford to be left behind!
Michael Oseni of the Polytechnic Ibadan, in his publication titled, Application and Challenges of International Financial Reporting Standards in Nigeria, equally noted that the International Accounting Standards Board (IASB) being the global regulator of accounting standards has issued a set of standards which were known as International Financial Reporting Standards (IFRS).
However, these standards had elicited reactions not only from the profession but the academia and the business world who had made meaningful contributions to the debate.
The business world had never had anything as commonly discussed in recent times as this IFRS save the millennium bug in the twilight of the 20th century.
Primarily, the objective of financial statements as enunciated in IASB framework is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. These users are multifarious: managers, shareholders, prospective investors, financial institutions, suppliers, customers, employees, competitors, governments and even the general public have one or two things that generate their interest in the financial reports of firms.
The genesis of IFRS is the formation of the International Accounting Standards Committee (IASC) back in 1973 as a result of an agreement by professional accountancy bodies of major markets ( United Kingdom and Ireland , United States , Australia , Canada , France , Germany , Japan , The Netherlands and Mexico ) to develop a set of accounting principles across the globe.
In early days, the IAS were aimed at promoting best practice in the preparation of financial statements whilst permitting different treatments for given transactions and events.
Obviously, the application of IAS in preparing financial statements did not always result into uniform and comparable financial information simply because similar transactions and events were not necessarily reported in a like way.
With the dawn of globalization and increasing demand for transparent, comparable financial information in the markets, the IASC was restructured in 2001 by creating the International Accounting Standards Board (IASB), among other changes.
The IASB is responsible for developing, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements and other financial reporting to help participants in the various capital markets of the world and other users of the information to make economic decisions.
The IASB objective is to require like transactions and events to be accounted for and reported in a like way and unlike transactions and events to be accounted for and reported differently, both within an entity over time and among entities throughout the world. The choices in accounting treatment are continuously being reduced!
Consequently the IASB has, since its inception, issued a number of IFRSs and interpretations, and amended several IASs including interpretations issued under the previous Constitutions of IASC.
In pursuit of its objectives, the IASB co-operates with national accounting standards-setters to achieve convergence in accounting standards around the world.
IFRSs are developed through an international due process that involves accountants, financial analysts and other users of financial statements, the business community, stock exchanges, regulatory and legal authorities, academics and other interested individuals and organizations from around the world.
This due process is conducted by the IASB, which has complete responsibility for all technical matters including the publication and issuing of standards and interpretations.
In the understanding of many, the convergence with IFRS will result in local financial statements that are readily understandable and acceptable in global markets. Capital is a global commodity!
Foreign investors want financial statements that are comparable with those of similar businesses in other parts of the world, for strategic decision making in relation to mergers and acquisitions.
Many foreign investors will require their subsidiaries in Nigeria to report in accordance with IFRS so that the parent company can comply with its reporting requirements in its home territory.
They believed that if Nigeria adopt IFRS it would reduce the complication of such subsidiaries having to prepare different sets of records for reporting for local purposes as well as internally, thus facilitating business compliance and adding to the attractiveness for such an investor to start or continue operations in the country.
NAICOM’s Providential Approach
One strong point here is the courage of the present administration of NAICOM in being proactive especially when it comes to policy adoption and implementation as well as enforcement.
The Commissioner for Insurance, Mr Sunday Thomas at the inauguration of the Sub-Working Groups (SWG) of the insurance industry financial reporting working group (IIFRWG) in Lagos posited that the industry would not be taken unawares.
He said the initiative was in line with the Commission’s strategic goal, as IFRS 17 would facilitate transparency and accountability in financial reporting in the industry.
According to him, the constituted SWGs would assist the IIFRWG in providing guidance for seamless adoption of IFRS 17 by the Nigerian insurance companies effective January 1, 2023.
Thomas acknowledged the creditable performance of the Working Group and expressed appreciation to members for their selfless service to the Nigerian insurance industry in this journey to IFRS 17.
“We all know that in May 2017 the International Accounting Standard Board (IASB) issued the international Financial Reporting Standard 17 (IFRS 17) Insurance Contract, which will replace the present IFRS 4 on accounting for insurance contracts with an effective date of January 01, 2023.
“Thus, beginning from January 01, 2023, all insurance and reinsurance contracts must be reported in accordance with IFRS 17 whose objective is to ensure that an entity provides relevant information that faithfully represents the insurance contracts.
“This information forms the basis for users of financial statements to assess the effect that insurance
contracts have on the entity’s financial position, financial performance and cash flows,” Thomas said.
He said the constitution of the SubWorking Group was necessary to help in fostering the country’s adoption of the IFRS 17 in line with acceptable
best practice barring any fresh shift in the effective date of the application by the International Accounting Standards Board (IASB).
In case there was no such further shift, he said the Nigerian insurance industry would be afforded less than two years to prepare for the adoption of IFRS 17.
Also, on January 28, 2020, he said the Commission issued a “Roadmap” on Adoption of IFRS 17 Insurance Contract for Insurance Industry in Nigeria”.
The activities and timelines in the Roadmap, he said were intended to set the tone and facilitate a coordinated process and action steps.
“The Roadmap was issued for general adoption by all Insurance, Reinsurance, Takaful and Micro Insurance Companies in Nigeria.
“In addition to the inauguration of the IIFRWG and issuance of the Roadmap, the Commission also organized an IFRS awareness training on IFRS 17 for Chied Executive Officers, Non- Executive Directors and Accountants of insurance and Re-insurance companies in
Nigeria,” he said.
The new SWG, he said, would further provide technical recommendations and production of relevant guidance for the implementation of IFRS 17 that members of the IIFRWG.
Besides, the Commissioner of Insurance said the SWGs are to assist the IIFRWG in the achievement of its mandates by considering those more technical aspects in the implementation of IFRS 17 that would support in the seamless transition.
The IIFRWG, he said, already identified three critical sub working groups, namely Accounting, Disclosure and Reporting Sub-Working Group, to assist on technical
issues relating to accounting; Technical, Actuarial, Data Governance, Process and Systems Sub-Working Group – to assist on technical issues relating to actuarial, data and IT, and Policy and Methodology Sub-Working Group – to interpret requirements and draft Methodologies and policies.