In other words, in the absence of strong governance, managers have strong incentives to exploit accounting latitude in order to achieve certain short-run performance goals that are linked to rewards. This raises a number of important issues for governance. For one, insurers will need to consider the adequacy of existing internal controls and accountability frameworks to ensure the integrity of financial reporting. For example, where actuarial models are used, to what extent are these models and the assumptions underpinning them subject to sufficiently robust validations? Insurers will also need to consider the depth of knowledge and expertise required at the audit committee level to enable the effective oversight and monitoring of management discretion. Part of this oversight includes the rigor applied by boards and audit committees in the appointment of external auditors to ensure their ability to act as an independent check on management discretion. It is also essential for insurers to develop strategies for improving communications with users of financial statements. A key risk will be that users fail to make sense of reported results which can lead to irrational behavior and unintended consequences. Equipping board members and senior management to communicate results effectively will be particularly important. These are also the issues that supervisors will be concerned with. Given the potential for heightened risks and uncertainty, the Bank will examine the need for regulatory prescriptions or 3/5  BIS central bankers' speeches  guidance – particularly in the early phases of implementation.
Over time, we expect stronger governance within insurers to reinforce associations between financial reporting and fundamental economic factors, as intended by IFRS. In Malaysia, the finalisation of IFRS 17 is indeed timely in the light of current reforms being undertaken by Bank Negara Malaysia to further develop the domestic insurance market. This will see greater competition and complexity in the insurance sector, alongside a renewed impetus for growth through channel diversification and digitalisation. In this environment, the implementation of IFRS 17 will have an important role in improving the quality of information provided to the market on how these developments impact the performance of insurers, and in strengthening foundations for sound governance and risk management. This in turn will promote the effective functioning of insurance markets to serve the economy. Early preparation is key So then, where do we stand today? With less than two and a half years before the implementation date sets in, how prepared are insurers to implement IFRS 17? The answer is not encouraging. A recent survey published in January this year by a software firm covering some 240 insurance companies spread around the world, found that a startling 92% of insurers had yet to start putting solutions in place. Among those that have started, a vast majority are still only in the initial stages of planning.