Editorial

Just as this month’s edition of the WAR is being finalised for publication, we have the news of a new President elect in the US. It seems that the whole world was in suspense waiting for the election result. While those of us following more mundane developments in corporate reporting, may not devote quite as many waking minutes to seeking out the latest news, the stakes involved in some of the ongoing debates are also high. Currently one of the most controversial areas is the European Union’s (EU’s) endorsement process for the insurance standard, IFRS 17. The topic is covered below in an article that describes the key issue that could prevent the acceptance of the standard in Europe, and assesses the way in which the situation could evolve. Endorsement is a legal process which determines whether or not an IFRS is deemed fit to enter directly into the law of all EU member states. The first hurdle for a new standard to pass is that the European Financial Reporting Advisory Group (EFRAG) provides its advice to the European Commission on whether a standard meets the relevant legal tests for its acceptance into EU law. The draft advice shows that EFRAG’s Board is divided on whether all requirements in the standard meet the relevant criteria. In particular, for some insurance contracts, for example those which allow risk sharing across different generations of policyholders, some Board members believe that certain requirements in the standard would not be conducive to the European public good. If the advice is finalised next year with the same conclusions, the Commission will be in a difficult position, as it has limited options for proceeding. In the most recent IASB meeting, Hans Hoogervorst, Board chairman, alluded to the possibility of an EU “carve-out”, which means that the text that is causing the problem would be cut out of the standard. To do so would be an anathema to the Board, as it would impair the comparability of the financial statements of global insurance companies. However, this would seem to be the most likely outcome, and would certainly be much better than the EU turning down the standard in its entirety.