IFRS 17 - Insurance Contract: What has really Changed?

Background

The International Accounting Standards Board (IASB) issued IFRS 17 Insurance Contract in May 2017 as a replacement for IFRS 4 Insurance Contract. The standard was issued to correct the frailties in IFRS 4 and to provide a comprehensive framework for the recognition, measurement, presentation and disclosure of insurance contracts. The objective of IFRS 17 is to ensure that entities provide relevant information that faithfully represents their insurance contracts.

Before now, IFRS 4, being an interim standard, allowed insurers to still adopt accounting practices developed from local GAAPs in accounting for insurance contracts. This made comparability of financial statement across industries and countries impossible. Also, IFRS 4 did not ensure adequate information is provided to aid decision making of investors and other users.

In light of these failings of IFRS 4, the IASB completed its phase II project and issued IFRS 17 in May 2017. IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2023.

Accounting Failures 101: Overstatement of Account Receivables

In this new series, we will beam our search light on past and present accounting and audit failures in the financial reporting of organisations. The purpose of this is to re-educate ourselves on past failures that we need not repeat.

Background

This first episode is on the overstatement of account receivables of a company. On March 20, 2017 the Public Company Accounting Oversight Board (PCAOB) sanctioned Wander Rodrigues Teles, the former partner of PricewaterhouseCoopers Auditores Independentes in Brazil (PWC Brazil) for audit failures and violations of PCAOB rules and standards in connection with the audit of the consolidated financial statements of Sara Lee Corporation for the fiscal year ended July 3, 2010 and July 2, 2011.  

FEDERAL HIGH COURT NULLIFIES N50 STAMP DUTY ON BANK DEPOSIT

On 13 March 2017, in the case between Retail Supermarkets Nigeria Limited (AKA Shoprite) and the defendants Citibank Nigeria Limited (Citibank) and Central Bank of Nigeria (CBN), a Federal High Court (FHC) delivered a judgment on the validity of the circular issued by Central Bank of Nigeria (CBN) referenced CBN/GEN/DMB/02/006

The issue considered in the case is determining if the CBN circular aligns with the provisions of the Stamp Duties Act (SDA). The FHC held that the provisions of the CBN circular are inconsistent with the provisions of the SDA and as such are null and void.

Background of the Case

CBN issued a circular on 15 January 2016, mandating all banks and other financial institutions to enforce collection of ₦50 stamp duty on all electronic transfers and teller deposits from ₦1,000 and above.

WHAT HAS CHANGED ABOUT THE AUDITORS’ REPORT?

Over the years, companies have grown in leaps and bounds and so also have the complexities of these companies. Financial reporting is also becoming more complex with more room for estimates and management judgements. To effectively assure users and shareholders of the truth and fairness of these financial statements, the International Audit and Assurance Standards Board (IAASB) has come up with changes to make the auditors’ report a useful guide for shareholders. 

Before now, the auditors’ page carries less weight beyond the opinion paragraph. It fails to reveal the underlying challenges of the company identified during the audit exercise. With increasing company failures and near-failures, the auditors’ report has been revamped to show more than just the opinion paragraph.

So what are the changes in the auditors’ report? What do you need to know about the new auditors’ report? Well, quite a lot.

THE NEW AUDITOR'S REPORT – THE REVISED ISA 700

Over the years, there have been concerns about the auditor’s report being pedestrian and not revealing much about the audit of an entity. The auditor’s report is more or less a ‘copy and paste’ report lacking any useful information to the users except for the opinion paragraph. Even the opinion paragraph is predictable these days. Hardly will you see a qualified opinion anywhere again, which makes you wonder what then happened to the big corporations that collapsed. With the emerging complexities and recent failures in the corporate world, users of financial statements are demanding more transparency and insight into the audit process. 

In a bid to address these issues, and to enhance the informative value of an auditor’s report, the International Auditing & Assurance Standard Board (IAASB) has developed new and revised

ENSHRINING AN EFFECTIVE INTERNAL CONTROL SYSTEM – THE COSO FRAMEWORK (PART 2) 

To design and implement an effective internal control system, the Committee of Sponsoring Organisation of the Treadway Commission (COSO) identified five components which must be present and functioning. The five components support the organisation in its efforts to achieve its objectives – operations, compliance, and reporting. The five components are Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities. They are relevant at all levels of an entity; entity level, divisions, operating units and functions. In the Part 1 of this series, we have learnt the definition and meaning of internal control and its objectives according to the COSO framework. In this second part, we will take a full dive into the components of internal control and the other changes in the new internal control framework of 2013.

ENSHRINING AN EFFECTIVE INTERNAL CONTROL SYSTEM 

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A corporation, big or small, would be a den of chaos, if a sound internal control system is not enshrined in the entity. A major reality of the modern day complexities of a 21st century business entity is that there are so many transactions, activities, employees, and functions that if they are not properly coordinated and monitored, the business entity would be losing more than it is gaining. A sound internal control system serves to ensure order in an entity so that business objectives are achieved while employing the right personnel and operations are managed in accordance with company policies. Management is concerned with strategic decisions, but, even a well-thought out strategy will fail, if operations are going awry. Management want assurances that the right personnel have been employed; that operations are being carried out orderly in line with company policies; that fraud has been eliminated or can be detected; that the entity is complying with regulations and laws; that authorisation is sought before any transaction; that fraud risk is mitigated or eliminated. These assurances can only be given if a sound internal control system is enshrined in an entity.