Short answer
IFRS 17 sets rules for how insurers account for insurance contracts, focusing on accurate measurement of liabilities and profit over time. IFRS 18 affects how all companies report their income statement, introducing operating profit as a mandatory subtotal and improving disclosure of performance measures.
Key points
- IFRS 17 applies only to insurance contracts.
- IFRS 18 affects income statement presentation for all industries.
- IFRS 17 changes how insurers recognize profit over time.
- IFRS 18 introduces the mandatory subtotal 'operating profit'.
- Insurers must comply with both standards, affecting both accounting and reporting.
IFRS 17 and IFRS 18 are distinct accounting standards that apply to different aspects of financial reporting. IFRS 17 governs how insurance contracts are measured and recognized, while IFRS 18 changes how all companies, including insurers, present their income statements.
IFRS 17: accounting for insurance contracts
IFRS 17 sets a global standard for how insurers account for insurance contracts. It replaces inconsistent local rules with a uniform approach that reflects the economics of these contracts. The standard introduces the insurance fulfillment cash flows and a more transparent way of recognizing profit over time, improving comparability between insurers.
IFRS 18: improving income statement reporting
IFRS 18 focuses on how companies present their income statements. It requires a new mandatory subtotal called 'operating profit' to help users distinguish core business performance from other items. The standard also strengthens disclosure rules for management performance measures, such as 'underlying profit', requiring reconciliation to operating profit. This affects all sectors, including insurance companies already implementing IFRS 17.
Frequently asked questions
Do insurers need to apply both IFRS 17 and IFRS 18?
Yes, insurers must apply both standards. IFRS 17 changes how they account for insurance contracts, while IFRS 18 changes how they present their income statement and disclose performance measures.
What is operating profit under IFRS 18?
Operating profit is a new mandatory subtotal in the income statement that separates operating results from other income and expenses, helping users assess a company's core performance.
When do IFRS 17 and IFRS 18 take effect?
Both standards are effective from 1 January 2027, though some entities may have practical extensions. Companies are preparing in advance due to the significant changes involved.
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