Under Risk Adjustment, it is mentioned that - 1. Companies has discretion to choose one of the three RA calculation methods. 2. they can also set confidence level at their own choice. If such flexibility is given to companies, then how the objective of harmonization is accomplished across the world using IFRS17? won't it reduce the comparability of financials? Can you please help me understand the rationale behind the flexibility. Thanks in advance!
IFRS comprises a set of principles-based accounting standards, so there is indeed some flexibility and discretion permitted in their application. This ensures that companies are able to apply the principles in a way that best suits their own business. [Rules-based approaches can be problematic, particularly ensuring that the rules 'work' appropriately for each participant.] IFRS 17 permits comparability through disclosures. There is harmonisation in that every company is calculating a risk adjustment, and this is shown explicitly in addition to the underlying 'best estimate liability'. Yes, there is choice as to which method to use for the calculation of the risk adjustment and the confidence level at which it is calibrated (thus allowing companies to choose an approach that best fits their own risk profile), but this information has to be disclosed. This transparency facilitates understanding by users of the accounts.
