Major Changes Ahead for SA Insurance Accounting Systems

August 5 - The International Accounting Standards Board has made an official proposal to create a single accounting system that will serve the long and short term insurance sectors.

The proposal, which took 13 years to create and will make accounts comparable in 120 worldwide jurisdictions, could have sweeping effects on the South African insurance industry.

"This could mean massive and costly changes in system infrastructure," said insurance leader at PricewaterhouseCoopers Southern Africa, Victor Muguto.

At present, the South African system uses displaced standards of accounting, and the proposal would require insurers to go through a major overhaul, including data modeling and performance reporting.

Muguto said that the proposals could "create increased volatility in insurers' reported results, due to changes in discount rates, unbundling of certain contracts and a risk margin."

He said that there would also be significant changes to the presentation of the statement of comprehensive income.

However, the South African insurance industry could definitely benefit from a single accounting system over time.

"We are likely to see more consistency in the future in companies' accounting policies," said the National Director of accounting at Ernst and Young.

"There is undoubtedly a significant amount of technical information to digest, but as insurers work through the details they should begin to identify the systems, data and process areas impacted by this proposed accounting change together with the likely broader business and people impacts to derive a plan to address these matters in a way that meets likely adopting timelines," said Gerdus Dixon of KMPG.