Accounting overhaul a two-edged sword

Proposals by the International Accounting Standards Board (IASB) to introduce a new universal accounting system for insurers could be both a blessing and a curse, according to analysts at leading accounting firms.

The new rules, which will replace IFRS 4, the IASB’s current insurance accounting standard that was introduced in 2004, are expected to come into force in 2013 or 2014. They are expected to result in fundamental changes to the way insurance companies report and measure their performance using International Financial Reporting Standards (IFRS).

While the new rules are aimed at introducing greater consistency and comparability to insurers’ accounts around the world, they could introduce a significant amount of work at a time when they are already struggling under the weight of regulatory initiatives such as Solvency II, die to be implemented in 2013.

“The impact will be felt across the sector and will require insurers to conduct a complete overhaul of their systems and performance reporting,” said David Law, insurance leader at PricewaterhouseCoopers. “Due to the changes facing insurers, particularly in Europe as they implement Solvency II, these proposals will hit industry resources hard, at a time when they are already scarce.”

However, he added, “Insurers should welcome the exposure draft as a significant step forward to achieving a global comprehensive and comparable accounting model. They will welcome the opportunity for an open debate, in which they all have a vested interest in making their views heard."

Joel Osnoss, global IFRS leader at Deloitte Touche Tohmatsu, commented: “Many insurance companies would experience a significant amount of change in their financial statements and would need to modify their information systems, risk management programmes and possibly even product design,” added “There would also be a need for education of stakeholders, including shareholders, policyholders, analysts, and more.”

However, Osnoss also highlighted the long-term positives for the industry. “In the end, the hope is for consistency, comparability, and transparency across insurance companies operating in different jurisdictions around the globe.”

The IASB issued an exposure draft document today, giving the industry four months to comment. The final standard is due for publication in 2011.