Practical guide to IFRS

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Revised exposure draft will significantly change accounting for insurance contracts

On 20 June 2013, the IASB (‘the Board’) published a revised exposure draft (ED) on the accounting for insurance contracts reflecting its response to the comments received on the 2010 ED (‘previous ED’). The comprehensive proposals will fundamentally change the accounting by insurers and other entities that issue insurance contracts. The Board has attempted to address the concerns of constituents regarding the perceived ‘artificial’ volatility caused by the proposals in the previous ED, but these changes add complexity. The proposed standard will replace IFRS 4, which currently permits a wide variety of accounting practices for insurance contracts.

This practical guide summarizes the key proposals and their implications. Appendix 1 compares these proposals with the previous ED. Appendix 2 compares the proposals with the FASB ED that was issued on 27 June 2013. Appendix 4 provides a high-level comparison of the revised ED with Solvency II. The questions in the IASB ED target five key areas that have significantly changed since the previous ED as set out below:

  • The use of other comprehensive income (‘OCI’) for changes in discount rates.
  • Unlocking the contractual service margin (previously known as the residual margin).
  • Contracts that require the entity to hold underlying items and specify a link to returns on those underlying items.
  • Presentation in the statement of comprehensive income.
  • Transition.

It is important for insurers and other entities issuing insurance contracts to assess how all the requirements in the measurement model fit together.

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