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Retroactively Permitting Conditional Application of New Accounting Standards for Insurance Companies


International Financial Reporting Standards (IFRS) is an organization dedicated to creating global accounting standards. Recently, the Financial Supervisory Service (FSS) addressed the accounting treatment of Contractual Service Margins (CSM), a future revenue indicator under the new insurance accounting standard, IFRS 17. Concerns were raised about potential earnings inflation among insurance companies planning to retroactively apply the standard. To prevent any overstatement of profits, the FSS held an "IFRS 17 Guideline Accounting Treatment Seminar" to discuss the differing viewpoints and opposition regarding the accounting treatment methods for CSM. CEOs of major insurance companies, the Chairman of the Insurance Association, and representatives from accounting firms attended the seminar.


In response, the FSS categorized the accounting changes resulting from the application of the accounting assumption guidelines as "changes in accounting estimates." While the guiding principle is forward application, the FSS allowed for retroactive restatement of financial statements if it better reflects the economic substance. However, the revised financial statements must be categorized and disclosed under insurance liabilities, equity items, and current period profits to ensure comparability and fairness with companies applying the forward method. The FSS also imposed limitations on retroactive adjustments related to other accounting policies and fair value for insurance liabilities to prevent undue CSM increase resulting from retroactive application. To enhance transparency, the FSS plans to enhance disclosure requirements or take other measures for insurance companies undertaking retroactive restatements until the year-end closing of this year.


The FSS clarified that intentional manipulation of financial statements in connection with retroactive restatements will not be subject to the measures. An FSS official mentioned that the IFRS 17 accounting assumption guidelines will be implemented in phases, starting from the financial closing in June. Additional guidelines will be distributed as needed through meetings and assessments with accounting firms in the future.

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