Reply To: COSTS ASSOCIATED WITH IFRS 17
Sarthak Goel
Companies would have to make changes to their financial systems by acquiring knowledge in order to implement IFRS 17. This would cost the company significant time, effort, and money.
1. Costs for companies
A) Implementation Costs
Implementation of a new accounting practice involves cost on the part of companies, the significance of which depends on the company’s transactions affected by the changes in accounting, and on the changes needed to systems already in place to account for those transactions.
Therefore, the implementation costs for a company depend significantly on:
(a) the extent to which the requirements in IFRS 17 differ from the approaches currently applied by the company;
(b) the existing systems used by the company for other purposes, such as regulatory reporting.
Major areas that would require money for the successful implementation of IFRS 17 are:
(a) project design and implementation;
(b) systems set-up (software to be bought, which holds the major portion of the implementation cost and depends on whether it is a sub-ledger solution or a total financial system overhaul.)
(c) process changes (including the cost incurred on hiring consultancy services); and
(d) education and communication (including training costs to be incurred on employees)
B) Ongoing Costs
Ongoing costs to maintain accounting and actuarial systems, processes, and internal controls are expected to be higher for many companies compared with those incurred when applying IFRS 4. It is incurred for gathering information needed to:
(a) update the assumptions required to measure insurance contracts on a current basis;
(b) adjust the contractual service margin; and
(c) provide disclosures, particularly about movements in the insurance contract assets and liabilities.
The significance of the ongoing cost would depend on the complexity of contracts, frequency of change in estimates, the system used, etc. These costs generally arise for long term contracts.
IFRS 17 doesn’t lead to much change in the company’s assumptions and provided the benefits of IFRS 17, the cost incurred by the companies is not a significant one.
2. Costs for users
Users generally face problems while gathering useful information from financial accounts if they are not aware of the standards used to prepare them.
The cost would be incurred for educating and making the users well aware of the standards used to prepare financial statements so that it could be compared and analyzed easily and accurately.