Profit Reporting IFRS/MSB/IFRS Phase 2

I am studying the chapter on Profit Reporting and I find the explanations between the various IFRSs and Local GAAP standards quite confusing.

1. What are the main high level differences between IFRS and and Local GAPP reporting?
2. Is my assessment below of the timeline of changes to reporting correct?

IFRS Phase 1
These changes are based on a background where the overriding aim of the local GAAP regulations has been to converge to IFRS over time.

In 2005 certain entities (e.g. EU listed companies) were required to report under IFRS, The main requirements at this stage under IFRS were

• Insurance contract continute to be accounted for under Local GAAP.
• Investment Contracts must be accounted for according to IAS 39.

(i.e. In 2005 there is a change here in reporting for EU companies. This change applies to Investment contracts but accounting for Insurance contracts for these companies remains as was under Local GAAP)

In 2006 Local GAAP incorporated IAS 26 (which brings Investment Contracts under the Local GAAP reporting regime into line with IAS 39) At this stage there was broadly a convergence between Local GAAP and IFRS standards. Is this statement correct?

If the above statment is correct what are the main differences from 2006 to now between Local GAAP (MSB) and IFRS? One that I can think of is that Under IFRS there is no role for a reporting actuary but there is under Local GAAP??

IFRS Phase 2
The next stage for Insurance reporting is the incorporation of IFRS Phase 2. When this happens, will the ultimate goal be to converge local GAAP and IFRS Phase 2 similarly to the convergence of IFRS Phase 1 and local GAAP?.Will the final aim be that eventually there will be no such thing as Local GAAP and all companies in the EU will use IFRSs?

Many thanks.

 

Hi eroche1,

Sorry this doesn't answer your questions but just a thought, which other folk can help clarify.

You are not alone, I am also struggling on chapter 21, especially the flow. However I have resorted to probably the "lazier" approach in convincing myself that we probably need to know just the underlying principles rather than every detail, which probably someone taking an accountancy exam may be interested in.

My approach is:

• Know when to comply with IFRS or GAAP or combined.
• Be able to identify which contracts are "Insurance" and "which are "investment" in accordance with IFRS4.
• Be aware that reporting the former should follow GAAP and the latter IAS39.
• Know that compliance with UK GAAP broadly means using MSB (but not synonymous).
• Know that MSB already has FRS26 & 27 embedded, hence know the relevant details of how FRS26 and 27 affects MSB (ch 21,sec 2).
• Know the relevant(to SA2) principles underlying MSB, particularly; restating FSA Return numbers to MBS, including areas needing special treatments eg FFA, DAC etc (all in section 3 of chp 21).

I am not sure what this would mean for P2.
Regards