More work must be done to develop a
high-quality accounting standard for insurance contracts, the
Institute of Chartered Accountants in England and Wales (ICAEW) has

The International Accounting Standards Board’s
(IASB) consultation on its proposed standard, which closed today,
aims to provide guidance addressing recognition, measurement,
presentation and disclosure requirements for all insurance
contracts, whether they are issued by an insurer or any other

ICAEW’s financial services faculty head Iain
Coke said that while the IASB proposed standard represents a
significant shift on its previous insurance accounting discussion
paper, it is “not yet at the point where we have a high-quality and
workable standard that can be implemented.”

In a submission to the IASB, the ICAEW laid
out issues that need to be addressed which are not in the proposed

  • Asset-liability management: the interaction
    between managing assets and liabilities is a central part of
    insurers’ business model and is not dealt with in detail in the
    proposed standard. If the accounting does not reflect this,
    insurers’ financial reports will be less useful to investors;
  • Unbundling: as the IASB has decided to treat
    insurance contracts as a bundle of rights and obligations, its
    requirement to unbundle in certain situations is unnecessary;
  • Disclosure: the disclosure requirements
    around measurement uncertainty and sensitivity analysis are
    unclear. They will be hard to implement and may not provide useful
    information to investors; and,
  • Transition requirements: a full retrospective
    approach should be allowed where possible or else a simplified
    proxy approach for estimating retrospective numbers should be

The institute does support the IASB’s use of a
fulfilment approach instead of the previously suggested exit values

The IASB is expected to issue its final
insurance accounting standard in the second quarter 2011.