Government departments and public sector organisations should check if their insurance contracts are within scope of IFRS 17, after changes by the Financial Reporting Advisory Board (FRAB).
The aim of IFRS 17 is to make reporting of risk transfer contracts more comparable between different entities.
The Government Actuary’s Department (GAD) was involved in the development of the IFRS 17 application guidance for accounts within scope of the government financial reporting manual (FReM).
Accounting standard
The International Financial Reporting Standard 17 (IFRS 17) Insurance Contracts is the accounting standard for insurance contracts. Financial statements prepared by public sector organisations for 2025 to 2026 must be IFRS 17 compliant.
The FRAB has now reconsidered the scope of IFRS 17, to address uncertainty in the public sector where government departments issue contracts and include specific assurances to the contractor for risks associated with undertaking that contract.
Risks exist
Detailed updated advice is set out in IFRS 17 Insurance Contracts supplementary application guidance (PDF, 242KB). HM Treasury has advised that where the reporting entity
- awards a contract to a supplier/ other external body, and
- issues an indemnity covering risks the supplier now faces on delivering that contract, then
- this is not insurance risk and does not fall under the scope of IFRS 17
However, there will be risks on the government balance sheet that are within the scope of IFRS 17. This occurs when one party accepts significant insurance risk from another party by agreeing to compensate them if a specified uncertain future event adversely affects them. This might relate to a verbal as well as a written contract and a premium may or may not be payable. Insurance risk does not need to involve an insurance company and anybody accepting the transfer of existing risks faced by third parties could be in scope.
GAD is working in partnership with accounting specialists to interpret the new requirements and to help departments model and quantify the new disclosures to ensure their accounts will be IFRS 17 compliant for the end of this financial year.
If you are worried that you may have an obligation to report under IFRS 17 please contact us at [email protected].
