The European Union's endorsement of Amendments to International Financial Reporting Standard 4: An unprecedented “top up”

• Date: 01 July 2020
• DOI: http://doi.org/10.1002/jcaf.22436
• Published date: 01 July 2020
• Author: Michael Dobler

EDITORIAL REVIEW

The European Union's endorsement of Amendments

to International Financial Reporting Standard 4:

An unprecedented “top up”

Michael Dobler

Faculty of Business and Economics,

Technische Universität Dresden, Dresden,

Germany

Correspondence

Michael Dobler, Technische Universität

Dresden, Faculty of Business and

Economics, Chair of Accounting,

Auditing and Taxation, 01062 Dresden,

Germany.

Email: michael.dobler@tu-dresden.de

Abstract

The International Financial Reporting Standards (IFRS) must pass a formal

endorsement process to become binding for companies based in the European

Union (EU). In an unparalleled instance, the EU recently endorsed “Amend-

ments to IFRS 4”with a modification labeled as “top up”by allowing European

financial conglomerates to defer the application of IFRS 9 “Financial Instru-

ments”in their insurance sectors. This paper explains the background of this

decision, identifies the “top up”as an unprecedented case of carve-in, and dis-

cusses the key implications for regulation and practice.

KEYWORDS

carve-in, European Union (EU), financial conglomerate, financial instruments, insurance,

international accounting, International Financial Reporting Standards (IFRS), top up

1|INTRODUCTION

In the European Union (EU), Regulation (EU)

2017/1988 endorsed “Amendments to IFRS 4: Applying

IFRS 9 Financial Instruments with IFRS 4 Insurance

Contracts”(International Accounting Standards Board

[IASB], 2016) with a modification of their original con-

tent. The protocols of EU deliberations refer to the

modification as an EU “top up,”a new term in the

International Financial Reporting Standards (IFRS)

endorsement process. In brief, this “top up”extends

the scope of an optional temporary exemption from

IFRS 9 from predominate insurers to the insurance sec-

tors of EU-based financial conglomerates. What seems

to be a minor adjustment at first glance is an unprece-

dented case in the history of IFRS endorsement in the

EU. It is surprising how little attention academics and

practitioners have devoted to this unique case, which

has passed almost unnoticed beyond an inner circle of

European experts in insurance accounting.

What is the economic and political background of the

EU “top up”?Isthis“top up”not, in fact, a carve-in? What

are its implications for financial accounting regulation and

practice? To address the above questions, this paper sum-

marizes the deliberations and key arguments that led to

the “top up”and analyzes the characteristics of the scope

extension provided by the “top up.”My discussion of the

regulatory implications centers on power arguments and

the potential impact on future EU endorsement decisions.

By discussing the implications for preparers and users of

financial statements, I provide the initial evidence on how

many and which financial conglomerates actually chose to

exempt themselves from IFRS 9 in their insurance sectors.

The findings add to our understanding of the politics of

adopting IFRS in the EU and suggest obstacles to IFRS

financial statement analysis in insurance-related sectors.

Received: 8 August 2019 Revised: 21 October 2019 Accepted: 26 November 2019

DOI: 10.1002/jcaf.22436

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided

the original work is properly cited.

© 2019 The Author. Journal of Corporate Accounting & Finance published by Wiley Periodicals, Inc.

190 J Corp Acct Fin. 2020;31:190–196.wileyonlinelibrary.com/journal/jcaf