Chapter 7 Flashcards
(40 cards)
International Financial Reporting Standards (IFRS) Foundation
A non-profit international organisation responsible for developing IFRS Standards
IFRS Foundation Mission
To bring transparency, accountability and efficiency to financial markets worldwide
How many jurisdictions require IFRS standards?
More than 144 jurisdictions require IFRS
Three Tiers of the IFRS Foundation’s Governance Model
- IASB (International Accounting Standards Board)
- Trustees
- Monitoring Board
International Sustainability Standards Board (ISSB)
Develops sustainability related disclosure standards for investors and capital market participants
IFRS Advisory Council
Provides strategic support and advice to the IFRS Foundation
IFRS Interpretations Committee
Provides guidance on IFRS application where divergence in practice occurs
Accounting Standards Advisory Forum (ASAF)
Provides input from standard-setters into the IASB’s technical projects
How does the IASB cooperate with national standard-setters?
It works towards global convergence, collaboration with bodies like the FRC and FASB
Who is required to use IFRS in the UK?
UK companies listed on the London Stock Exchange must follow UK-adopted IFRS
Which major capital markets do not mandate IFRS?
The USA (no plans to adopt) and Japan (voluntary adoption permitted but not required)
UK Endorsement Board (UKEB)
The body that formally endorses IFRS in the UK, ensuring:
- providing a true and fair view
- serve the public good
- meet criteria for understandability, relevance, reliability and comparability
Two key assumptions of the IRFS framework
Accrual Basis - transactions are recorded when they occur, not when cash is received/paid
Going Concern - financial statements assume the entity will continue operating unless otherwise stated
2019 Revised Going Concern Standard
- stronger auditor scrutiny of management’s assessment
- thorough testing of supporting evidence
- evaluation of management bias in reporting
IFRS Definition of Useful Financial Information
Financial Information should be:
- comparable
- verifiable
- timely
- understandable
Statement of Financial Position (Balance Sheet)
- assets
- liabilities
- equity
Statement of Comprehensive Income (Income Statement)
- income
- expenses
Financial Policy Committee (FPC)
A Bank of England committee, created in 2013
- monitors emerging risks and vulnerabilities
- reports to the government on it’s actions or reasons for inaction
- includes members from Bank of England, FCA and HM Treasury
IFRS 17
A new accounting standard for insurance contracts issued in May 2017, effective from 1st January 2023
Introduced to improve comparability of insurance companies’ financial statements by requiring consistent accounting
Issues with IFRS 4
Allowed insurers to use national accounting standards, leading to inconsistent financial reporting and making company comparisons difficult for investors
How does IFRS 17 change insurance accounting?
- uses current values instead of historical cost
- regular updates to financial information for better transparency
- ensures insurance liabilities remain in the balance sheet until settled
- prohibits offsetting insurance liabilities against reinsurance assets
IFRS 17 Key Tests
- adequacy test for recognised insurance liabilities
- impairment test for reinsurance assets
- no provisions for future potential claims
Key Terminology and Disclosure Changes in IFRS 17
GWP - still available but not presented in income statement
Net Written Premium - no deductions for ceded premiums or acquisition costs
Earned Premium - now called “insurance revenue”
Unearned Premium Reserve - now called “liability for remaining coverage”
Outstanding Claims Provision - now called “liability for incurred claims”
Deferred Acquisition Costs - no longer presented as an asset, but included in contract fulfilment cash flows
Claims Development Tables (CTDs)
Required under both IFRS 17 and IFRS 4, shows how accurate past estimates of outstanding claims were, helping assess insurance liability risks
