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Illustrative disclosures for insurers · PDF file 2021. 1. 30. · 18. Share-based...

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  • Illustrative disclosures for insurers Guide to annual financial statements

    IFRS 17 and IFRS 9

    September 2020

    home.kpmg/ifrs

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    https://home.kpmg/xx/en/home/services/audit/international-financial-reporting-standards.html

  • Contents About this guide 2

    About IFRS 17 6

    About the Group 11

    Consolidated financial statements 12

    Financial highlights 13

    Consolidated statement of profit or loss 14

    Consolidated statement of profit or loss and other comprehensive income 15

    Consolidated statement of financial position 16

    Consolidated statement of changes in equity 18

    Consolidated statement of cash flows 20

    Notes to the consolidated financial statements 22

    Contents

    Appendix I 255

    General presentation and disclosures exposure draft 255

    Acknowledgements 257

    Keeping in touch 258

  • Notes

    Basis of preparation 22 1. Reporting entity 22 2. Basis of accounting 22 3. Functional and presentation currency 22 4. Use of judgements and estimates 22 5. Changes in significant accounting policies 24

    Risk, capital and fair values 37 6. Risk and capital management 37 7. Fair value measurement 86 8. Financial instruments – Classification and

    fair values 88

    Performance for the year 99 9. Operating segments 99 10. Insurance revenue 105 11. Net financial result 106 12. Revenue from investment management services 111 13. Other income 112 14. Expenses 112 15. Other finance costs 113 16. Earnings per share 114

    Employee benefits 115 17. Employee benefit assets and liabilities 115 18. Share-based payment arrangements 119

    Income taxes 122 19. Income taxes 122

    Assets 128 20. Cash and cash equivalents 128 21. Financial investments and derivatives 128 22. Receivables 131 23. Investment property 131 24. Equity-accounted investees 133 25. Property and equipment 135 26. Intangible assets and goodwill 137 27. Other assets 140

    Liabilities and equity 141 28. Payables 141 29. Investment contract liabilities and third party

    interests in consolidated funds 141 30. Insurance and reinsurance contracts 142 31. Loans and borrowings 188 32. Provisions 190 33. Other liabilities 191 34. Capital and reserves 192

    Group composition 196 35. Subsidiaries and non-controlling interests 196 36. Acquisition and disposal of subsidiaries 199

    Other information 203 37. Unconsolidated structured entities 203 38. Leases 204 39. Commitments 205 40. Contingencies 205 41. Related parties 206 42. Subsequent events 207

    Accounting policies 208 43. Basis of measurement 208 44. Significant accounting policies 209 45. Standards issued but not yet effective 254

  • © 2020 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

    2 | Guide to annual financial statements – IFRS 17 and IFRS 9: Illustrative disclosures for insurers

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    About this guide This guide has been produced by the KPMG International Standards Group (part of KPMG IFRG Limited).

    It is intended to help insurers to prepare and present financial statements in accordance with IFRS® Standardsa by illustrating one possible format for financial statements for a fictitious multinational insurer (the Group) that applies IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments. It has been updated to reflect the amendments to IFRS 17 published in June 2020 and other developments.

    The hypothetical reporting entity has been applying IFRS Standards for some time – i.e. it is not a first-time adopter. For more information on first-time adoption, see Chapter 6.1 in the 17th Edition 2020/21 of our publication Insights into IFRS.

    Impact of IFRS 17 and IFRS 9

    This guide illustrates example disclosures for the initial application of IFRS 17 and IFRS 9 and their consequential amendments to other standards for an annual reporting period beginning on 1 January 2023. It assumes that the temporary exemption from IFRS 9 was applied before 1 January 2023, as permitted by IFRS 4 Insurance Contracts.

    Applying the new standards is expected to significantly affect the presentation and disclosures included in insurers’ financial statements.

    – Presentation of primary financial statements: The impact of financial risks and investment income on an insurer’s results will be presented separately from insurance performance, providing a clearer picture of profit drivers. The new standards have also introduced new required line items in the primary statements. These include insurance revenue, insurance service expenses and net expenses from reinsurance contracts in the insurance service result, and interest revenue calculated using the effective interest method, net impairment loss on financial assets and insurance finance income or expenses in the net financial result.

    – Disclosure of the nature and effect of changes in accounting policies: The impact that the adoption of the new standards will have on the financial statements will vary between entities, depending on previous accounting policies and practices. Entities are required to describe the nature and effect of initially applying the new standards. This will involve providing the transition disclosures in IFRS 17 and IFRS 7 Financial Instruments: Disclosures (as amended by IFRS 17 and IFRS 9), as well as the general disclosure requirements in paragraph 28 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, when applicable.

    Note 5 illustrates one possible way of providing these disclosures.

    a. ‘IFRS® Standards’ is the term used to indicate the whole body of authoritative literature, and includes:

    – IFRS® Standards issued by the International Accounting Standards Board (the Board);

    – IAS® Standards issued by the International Accounting Standards Committee (IASC, the Board’s predecessor), or revisions thereof issued by the Board;

    – interpretations of IFRS Standards and IAS Standards developed by the IFRS Interpretations Committee (IFRIC® Interpretations) and approved for issue by the Board; and

    – interpretations of IAS Standards developed by the Standing Interpretations Committee (SIC® Interpretations) and approved for issue by the Board or IASC.

    https://home.kpmg.com/xx/en/home/insights/2013/09/insights-into-ifrs.html https://home.kpmg.com/xx/en/home/insights/2013/09/insights-into-ifrs.html

  • © 2020 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

    About this guide   | 3

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    – Ongoing disclosures: Entities are required to provide the new ‘business as usual’ disclosures that are included in IFRS 17 and IFRS 7 (as amended by IFRS 17 and IFRS 9).

    For insurance contracts, these include reconciliations of insurance contract balances, as well as new disclosures about insurance revenue, the contractual service margin, insurance finance income or expenses, transition and other recognised amounts, and significant judgements made in applying IFRS 17. For financial instruments, these include new or expanded disclosures about credit risk, expected credit losses, hedge accounting and significant judgements made in applying IFRS 9.

    The appropriate level of disclosure will ultimately depend on the entity’s facts and circumstances, the extent to which it is affected by the new standards, and the expectations of users and regulators, if applicable.

    IFRS 17 is a complex standard, and the interpretation of its requirements is subject to ongoing discussions between preparers, auditors, regulators and other stakeholders. This guide does not pre-empt that process. Instead, it gives an indication of possible disclosures if an insurer interprets the requirements in a particular way. It aims to help insurers to implement IFRS 17 by guiding them through the decision-making process needed to prepare the required disclosures. It does not set out what methodologies could be used to prepare those disclosures.

    Explain the changes As preparers apply IFRS 17 and IFRS 9 in their 2023 annual financial statements for the first time, they will have a valuable opportunity to think through how best to explain the changes and their effects. The quality and clarity of explanations of changes in accounting policies and their impacts are critical. Investors and other stakeholders will be keenly interested in disclosures of key judgements and estimates.

    Pre-transition disclosures

    Users and regulators are showing an increasing interest in understanding the possible impact that the adoption of IFRS 17 and IFRS 9 will have on insurers’ financial statements. As a consequence, significant focus is expected on the pre-transition disclosures that are required by paragraphs 30–31 of IAS 8.

    Regulators have communicated their expectation that, as preparations for implementation progress, more information about the possible impact that the adoption of the new standards will have on the financial statements should become known or reasonably estimable, and preparers should therefore be able to provide progressively more entity-specific qualitative and quantitative information in their financial stateme

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