The Malaysian Accounting Standards Board (MASB) has issued the following pronouncements:
These pronouncements are word-for-word IFRS 17 Insurance Contracts and IFRIC Interpretation 23 Uncertainty over Income Tax Treatments issued by the International Accounting Standards Board.
MFRS 17 replaces the existing Standard on Insurance Contracts, MFRS 4. MFRS 17 is effective for annual periods beginning on or after 1 January 2021. Earlier application is permitted provided the entities have applied MFRS 9 Financial Instruments and MFRS 15 Revenue from Contracts with Customers on or before the date of initial application of MFRS 17. The IC Interpretations are effective for annual periods beginning on or after 1 January 2019. Earlier application is permitted.
MASB Chairman, Encik Mohamed Raslan said, “MFRS 17 will help investors and others better understand insurers’ risk exposure, profitability and financial position.”
MASB Executive Director, Ms. Tan Bee Leng said, “MFRS 17 includes several transition reliefs to assist entities in applying MFRS 17 for the first time, one of which is that if it is impractical for entities to apply MFRS 17 retrospectively, entities have the option of using either the modified retrospective approach or the fair value approach.”
The “Notice of Issuance” can be downloaded here.
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MFRS 4 has been issued as a temporary Standard pending the completion of MFRS 17. MFRS 4, in most respects, allows insurance entities to continue to account for insurance contracts in terms of its previous accounting policies. Differences in accounting treatment across jurisdictions made it difficult for investors and analysts to understand insurers’ results.
MFRS 17 introduces consistent accounting for all insurance contracts based on a current measurement model. MFRS 17 requires entities that issue insurance contracts to recognise and measure a group of insurance contracts at: (i) a risk-adjusted present value of future cash flows that incorporates information that is consistent with observable market information; plus (ii) an amount representing the unearned profit in the group of contracts. Profits from the group of insurance contracts are recognised over the insurance coverage period. In addition, MFRS 17 changes the financial statements presentations of insurance service results—insurance revenue is presented separately from insurance finance income or expenses.
For insurance contracts with coverage period of one year or less, MFRS 17 allows an entity to measure the amount relating to remaining service by allocating the premium over the coverage period.
The Standard on Income Taxes, MFRS 112 and FRS 112, includes requirements on recognition and measurement of tax assets and liabilities, but does not specify how to reflect uncertainty. As a result entities apply diverse reporting methods when the application of tax law is uncertain.
The Interpretation clarifies that an entity shall:
(1) assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations.
(2) reflect the effect of uncertainty in determining the related tax position (using either the most likely or the expected value method) if it concludes it is not probable that the taxation authority will accept an uncertain tax treatment.