Adoption of IFRS Provides Benefits to Insurers

The International Financial Reporting Standards offer insurers the potential to simplify financial reporting and reduce accounting complexity.

Adoption of International Financial Reporting Standards (IFRS) will offer important benefits to insurers, including the potential to simplify financial reporting and reduce accounting complexity and the costs associated with this function. Instead of preparing both Generally Accepted Accounting Principles (GAAP) and statutory financial reports, insurers will, ultimately, comply with a single IFRS standard. IFRS also will increase transparency for investors and shareholders.

As with any major transition, however, there will be challenges. For example, under the new standards insurers will have to manage multiple ledgers by legal entity and have the capability to consolidate this data. As such, they will require enterprise performance management (EPM) capabilities along with advanced analytics tools. An EPM system will also facilitate flexible reporting and provide management with customized views of data based on current and modeled scenarios. As important, advanced audit capabilities will facilitate compliance with other regulatory requirements, including Sarbanes-Oxley and the Model Audit Rule.

To ensure readiness for IFRS adoption, insurers must begin to plan today for the business transition and IT infrastructure requirements, evaluating their accounting systems and implementing new processes. While IFRS requires two years of comparatives, best practices call for running comparative ledgers for five years. Nonetheless, the transition to IFRS presents insurers with a valuable opportunity to streamline reporting, expand visibility and reduce reporting costs.