The International Accounting Standards Board (IASB) recently issued a final standard (IFRS 16, Leases) that will require companies to bring leases onto the balance sheet (see the January 27 issue of BVWire).

Sir David Tweedie, former chairman of the IASB and the current chairman of the board of trustees of the International Valuation Standards Council, was recently asked: With IFRS 16, Leases now published, what do you see as the next big challenge in financial reporting?

“Insurance accounting,” he says. “For many years insurance companies have suffered from the fact that many consider their accounts to be extremely opaque. Insurance is a back-to-front industry. Cash is received upfront and the service provided later—the complete antithesis of most commercial transactions.

“In accounting terms the debit is simple—it goes to cash. The question is how much of the credit is a liability and how much is income. The measurement of insurance liabilities is a highly complex subject and the IASB is to be congratulated for persevering with this extremely difficult problem—a problem that is taking almost as long to solve as did the leasing problem.”

Tweedie made his remarks during a recent interview with Wiley Insight IFRS.