IFRS 17 heralds a new era of accounting for insurance contracts because it sets out principles-based requirements that aim to improve the comparability of the measurement and presentation of insurance contracts across entities reporting in jurisdictions applying International Financial Reporting Standards (IFRS). The impact of IFRS 17 will be felt by many stakeholders, including, but not limited to preparers of financial statements, those charged with the governance of entities that issue insurance contracts, investors, regulators, analysts and auditors.
With IFRS 17’s anticipated mandatory effective date of 1 January 2023 moving ever closer, all types of businesses, not just registered insurance businesses, need to start evaluating the impact of the Standard now. In particular audit committees should be considering the quality of the financial reporting of IFRS 17.
With this in mind, the GPPC has issued another paper which builds on the paper issued in 2020 ‘Implementation of IFRS 17 Insurance Contracts – Consideration for those charged with governance’ This additional paper focusses on the auditor’s approach to auditing estimates and associated judgements made in the application of IFRS 17.
After an introduction, this paper is broken down into the following sections:
- Section 2 - discusses how the auditor may assess the risk of material misstatement in financial statements arising specifically from the application of IFRS 17, including consideration of: – the insurance entity and its environment; and – the risk of material misstatement in estimates including inherent risks and control risks.
- Section 3 – covers the auditor’s responses to the assessed risks of material misstatement including testing how management made the accounting estimates and developing an auditor’s point estimate or range.
- Section 4 – discusses data, information systems, processes and controls (including risk assessment, testing and impact on audit approach).
- Section 5 – discusses financial statement disclosures related to accounting estimates and estimation uncertainty.
- Section 6 – discusses other considerations for the auditor and the insurance entity, such as management bias and professional skepticism.
The Global Public Policy Committee has created an auditor's response to the risks of material misstatement arising from estimates made in applying IFRS 17.