Many are aware that there are new accounting standards that apply to the insurance industry in Australia. These changes are financial instruments (IFRS 9) and insurance contracts (IFRS 17). The changes have brought big changes in many accounting entities when it comes to the financial reporting aspect.
These new accounting standards bring both benefits and challenges to the insurance industry. According to surveys, most AUstralian insurers are behind their international counterparts when it comes to getting ready for the new accounting standards. It has been found that only 7% of insurers are fully prepared to the new standards while most of them are anticipating less than year preparations before these standards go live on January 1, 2021.
These changes are greatly driving major changes on how insurance companies handle their business. There is no doubt that changes are the greatest changes that will significantly affect the insurance industry after over twenty years. There are only a few months left for the insurance companies to prepare. Insurers need to understand, interpret and apply the new standards on how they process insurance contracts as well as their reporting system. This means they have to adapt to a new process where it will take a lot of time and effort. The new standards do not end on their financial teams but it goes beyond that it needs to reach both their internal and external stakeholders.
Here are some challenges that many insurers are going to face when the new standards are applied.
- Deadline to publish resulting reports will be shortened
- Calculations will be more complex
- Demand for manual activities will possibly be greater
- It will require more time for understanding and analysis
- Balance sheet for profit and loss will be in the new format
- There will be now accounting logic
- The disclosure of some requirements like estimation process will be changed
- The reporting of data on content and structure will also be change
- Planning and forecasting should be adjusted based on the new IFRS regime
- More transparency on financial results and KPIs
- The history of reported figures and data should be shown
Now these are only among the many challenges that the insurance company will be facing once the new standards are applied.
These new accounting standards are made with a goal of creating something that will be beneficial for the insurance company in a way that the decision making process will be quick, consistent and in line with the company’s vision or goal.
While there are some challenges that insurance companies are facing, the new accounting standards also presents some opportunities like the following:
- Enhance the current insurance accounting system to produce accurate calculations and reporting
- Enhance the financial system and IT solution to cover the new changes
- The new standards presents the easiest and fastest solution to implement
- It requires lower investment
- Leave the old system intact while implementing the new and more efficient system
- There is higher flexibility in implementing solutions to accounting problems
- The critical path risk is low
Since the new accounting standards are already set, what insurance companies can do is to understand these changes and its requirements. They should conduct briefing sessions and discuss how they can fully adapt to these changes while minimising issues. Maybe hire an external auditor and regulators like from bookkeeping services in parramatta. There is also a need for them to mobilise their project resources and develop effective implementation strategy.
The new accounting standards may present some issues but there is no doubt that the change is an opportunity for life insurance companies to re-evaluate, rethink and revolutionise their accounting processes in the industry.