Just group PLC | Annual Report and accounts 2022
INDEPENDENT AUDITORS’ REPORT continued
Key audit matter How our audit addressed the key audit matter Disclosure of the expected impact of initial application of IFRS 17 ‘Insurance Contracts’ in accordance with IAS 8 (Group) Refer to Note 1(ii) New accounting standards and new significant accounting policies.
International Accounting Standard 8: Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8), requires the disclosure of reasonably estimable information relevant to assessing the possible impact of new accounting standards issued but not yet effective. International Financial Reporting Standard 17, Insurance Contracts, (IFRS 17 or “the standard”) became effective for periods beginning on or after 1st January 2023. The related IAS 8 disclosures in these financial statements are intended to provide users with an understanding of the estimated impact of the new standard, and as a result, are more limited than the disclosures which will be required within the 2023 interim and annual reports. In addition, IFRS 9 ‘Financial instruments’ replaced IAS 39 Financial Instruments: Recognition and Measurement, which will also be applied as of 1 January 2023, having previously been deferred until implementation of IFRS 17. However, this does not have a significant impact on the financial statements or IAS disclosures and is therefore not considered to be a key audit matter. We have determined the disclosure of the impact of IFRS 17 to be a key audit matter because of the significant changes introduced under the new standard, and the judgements required to estimate the impact on 1 January 2022 (the “transition date”). IFRS 17 adoption is expected to significantly reduce the Group’s accumulated profit as at the transition date. This is primarily due to the establishment of the Contractual Service Margin (“CSM”) on adopting IFRS 17 which reflects the slower release of profits compared to IFRS 4. The CSM is the mechanism in IFRS 17 by which profits are deferred and amortised over the duration of a contract. The implementation of IFRS 17 requires the Group to interpret the requirements of the new standard and make significant judgments and assumptions to develop its accounting policies. Key judgments made include: • The determination of the date before which it is impracticable to apply the fully retrospective approach; • The approach for how the fair value has been determined to calculate the CSM on transition; and • The CSM amortisation approach for deferred annuities. New models and processes are required in order to calculate the transition impact, in addition to changes to end-state models and processes following transition. Consideration is required as to whether the models developed adequately incorporate the methodology and have been through an appropriate governance and review process.
We performed the following procedures to assess the appropriateness of the IAS 8 disclosures with respect to the estimated impact of the initial adoption of IFRS 17: • Understood and evaluated the relevant controls and governance process in place for the determination and approval of key methodologies, judgments and assumptions; • Understood and evaluated the relevant controls in place with respect to the valuation of the impact on the Group’s accumulated profit on adopting IFRS 17 at the transition date; • Challenged management’s conclusions with respect to impracticability and the transition approach and ensured it was in accordance with the requirements of IFRS 17; • Obtained an understanding of and challenged the key methodologies, judgements and assumptions used to develop and calculate the impact on the Group’s accumulated profit on adopting IFRS 17 at the transition date. We involved our actuarial specialists to evaluate the key actuarial judgments made including the approach to the fair value calculation at the transition date; the calculation of the fully retrospective CSM at inception; and an estimation of the change in this CSM to the transition date; • Performed testing oner the fair value models used to calculate the impact on the Group’s accumulated profit on adopting IFRS 17 at the transition date. In doing so we determined whether the model adequately incorporated the methodology adopted; and • Reviewed the quantitative and qualitative disclosures to ensure they comply with the requirements of IAS 8. Based on the audit procedures performed and evidence obtained, we consider the disclosures related to the initial impact of IFRS 17 to be appropriate.
How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. Decisions regarding scoping require a significant degree of professional judgement based on quantitative and qualitative considerations, including the size and nature of business activities in each operating entity. The Group is predominantly based in the United Kingdom and writes business across four main product lines, being Defined Benefit risk transfers, Individual Annuities, Lifetime Mortgages and Long-term Care Plans. The Group consists of the parent Company, Just Group plc, and a number of subsidiary companies, of which the most significant are Just Retirement Limited and Partnership Life Assurance Company Limited, which conduct substantially all the insurance business on behalf of the Group.
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