Regulation (EU) 2022/1491 amends IFRS 17 regarding comparative information upon first application. This amendment allows companies to enhance the presentation of financial information in case of classification differences with IFRS 9. It is applicable from January 1, 2023, with an option for early application.
The document is Regulation (EU) 2022/1491 adopted by the European Commission on 8 September 2022. It amends Regulation (EC) No 1126/2008 concerning the International Financial Reporting Standard IFRS 17 "Insurance Contracts." The regulation specifically addresses comparative information upon the first application of IFRS 17 and IFRS 9 "Financial Instruments." The scope covers entities applying IFRS 17 and IFRS 9 simultaneously, within the European context, with immediate entry into force after publication (9 September 2022) (p. 1-4).
This regulation amends IFRS 17 to integrate a new transitional provision published by the IASB in December 2021, aiming to improve the presentation of comparative information upon the first simultaneous application of IFRS 17 and IFRS 9. The topic is important because IFRS 17, applicable from 1 January 2023, introduces major changes in accounting for insurance contracts, and its joint application with IFRS 9 may generate difficulties in presenting comparative information, notably due to differences in classification of financial assets. The amendment introduces the so-called "classification overlay" option, which allows entities to present comparative information as if IFRS 9 classification rules had been applied, even if financial assets have not been restated under IFRS 9. This option aims to increase the usefulness and consistency of comparative financial information, avoiding distortions related to non-restatement of financial assets. The main conclusions are that this amendment complies with European adoption criteria, applies only to the first application of IFRS 17 and IFRS 9, and imposes qualitative disclosure requirements on its application. The implicit recommendation is that entities applying IFRS 17 and IFRS 9 simultaneously use this option to improve comparability of their financial statements, while respecting IFRS 9 transitional provisions and clearly communicating on application methods (p. 1-4).
The regulation responds to the IASB publication on 9 December 2021 of an amendment to IFRS 17 concerning transitional provisions related to comparative information upon the first application of IFRS 17 and IFRS 9. This amendment aims to resolve a specific issue: differences in classification of financial assets between IAS 39 and IFRS 9 complicate the presentation of comparative information. The challenge is to ensure consistency and comparability of financial statements during the transition to these new standards. The objective is to adopt this amendment within the European framework, in compliance with Regulation (EC) No 1606/2002, to allow European entities to apply this "classification overlay" option upon the first simultaneous application of IFRS 17 and IFRS 9. The scope is limited to comparative information of financial assets related to insurance liabilities, and the application is mandatory only at the first application of IFRS 17 (p. 1-2).
Transitional provisions of IFRS 17 and IFRS 9: The regulation introduces additional paragraphs (C2A, C28A to C28E, C33A) to IFRS 17 to frame the presentation of comparative information upon the first simultaneous application of IFRS 17 and IFRS 9. These provisions allow the application of a "classification overlay" option for financial assets (p. 3-4).
Classification overlay: This option allows comparative information to be presented as if IFRS 9 classification and measurement rules had been applied, even if financial assets have not been restated under IFRS 9. It applies notably when the entity chooses not to restate prior figures or has derecognized the asset in a prior period (p. 3).
Application methods: To apply the overlay, the entity must use reasonable and supportable information available at the transition date to determine the expected classification under IFRS 9. It is not required to apply IFRS 9 impairment rules in this context but must continue to present impairment amounts recognized under IAS 39 for the comparative period (p. 3-4).
Recognition of differences: Any difference between the previous carrying amount and the carrying amount recalculated under the overlay must be recognized in retained earnings or another component of equity at the transition date (p. 4).
Disclosures: The entity must provide qualitative information on the extent of the overlay application, notably whether it was applied to all financial assets derecognized in the comparative period, and on the application or non-application of IFRS 9 impairment rules (p. 4).
Limited application: The option applies only to comparative information relating to periods between the IFRS 17 transition date and the first application date of IFRS 17, and to the first simultaneous application of IFRS 9 (p. 4).
Case of derecognized assets: For financial assets derecognized between the IFRS 17 transition date and the first application date, the entity may apply the overlay adapting provisions to reflect the expected classification at the first application date (p. 4).
Established facts: The regulation amends IFRS 17 to integrate a classification overlay option upon the first simultaneous application of IFRS 17 and IFRS 9. This option improves the presentation of comparative information of financial assets related to insurance liabilities, considering classification differences between IAS 39 and IFRS 9 (p. 1-4).
Assumptions: The entity has reasonable and supportable information at the transition date to estimate the expected classification under IFRS 9. It chooses whether or not to apply the overlay within the first application of IFRS 17 and IFRS 9 (p. 3-4).
Interpretations: The classification overlay is a transitional measure aiming to increase comparability and consistency of financial statements, without requiring full restatement of comparative information under IFRS 9. The absence of application of IFRS 9 impairment rules in this context is offset by presentation of amounts under IAS 39 (p. 3-4).
Uncertainties: The exact impact on financial statements depends on the entity’s choices regarding overlay application and availability of information at the transition date. Qualitative communication is essential to understand these impacts (p. 4).
The European Commission concludes that the IFRS 17 amendment related to the classification overlay meets European adoption criteria and must be integrated into Regulation (EC) No 1126/2008. The regulation is mandatory and directly applicable in all Member States as of 28 September 2022. It is recommended that entities applying IFRS 17 and IFRS 9 simultaneously use this overlay option to improve presentation of comparative information, while respecting qualitative disclosure requirements and IFRS 9 transitional provisions. This measure facilitates the transition to the new standards and reduces distortions in comparative financial statements (p. 1-4).
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