IFRS 4 Flashcards
Discuss requirement for Embedded derivatives (ED)
Clarifies that an insurer need not account for an ED separately at fair value if the ED meets the definition of an IC
Discuss requirement for Unbundling of deposit components
Unbundling
• Is required if (a) and (b) are met
• Is permitted if (a) is met and (b) is not
• Is prohibited if (a) is not met
(a) Insurer can measure the deposit component separately
(b) Insurer’s accounting policies do not otherwise require it to recognize all obligations and rights arising from the deposit component
Discuss Liability adequacy test
- Insurer shall assess at the end of each reporting period whether its recognised insurance liabs are adequate, using current estimates of future CFs under its IC
- If that assessment shows that the liability is inadequate the entire deficiency shall be recognised in profit/loss
Discuss Impairment of Re assets
• If a cedant’s Re asset is impaired, the cedant shall reduce its carrying amount accordingly and recognise that impairment in profit/loss
Re asset is impaired if:
1) Evidence, as a result of an event, that the cedant may not receive all amounts due
2) That event has a reliably measurable impact on the amounts
In IFRS 4, under what circumstances can an insurer change its accounting principles
If that change makes the FS:
1 - More relevant, without being less reliable
2 - More reliable, without being less relevant
- Reliable: Info about an item is representationally faithful, free of material errors, and free of bias
- Relevant: Item can make a diff in the user’s decisions
Discuss Current market interest rates (Changes in accounting policies)
- Re-measures designated liabs to reflect current market interest rates and recognises changes in those liabs in profit/loss
- Permits an insurer to CiAP for designated liabs, without applying those policies consistently to all similar liabs
Discuss Continuation of existing practices (Changes in accounting policies)
Insurer may continue not implement the following practices:
• Measuring insurance liabs on an undiscounted basis
• Measuring future investment management fees that exceeds their fair value
• Using non-uniform accounting policies for the IC of subsidiaries
Discuss Prudence (Changes in accounting policies)
- Insurer need not CiAP to eliminate excessive prudence
* Insurer should not intro additional prudence if already sufficient
Discuss Future investment margins (Changes in accounting policies)
• No CiAP need to eliminate future investment margins
• FS can be more relevant and no less reliable by switching to a comprehensive investor-oriented basis of accounting that is widely used and involves:
(a) Current estimates and assumptions
(b) Reasonable adj to reflect risk and uncertainty
(c) Measurements that reflect the intrinsic and time value of embedded options and guarantees
(d) Current market discount rate
Discuss Shadow accounting (Changes in accounting policies)
Is permitted to CiAP so that a recognized but unrealized gain/loss on an asset affects those measurements (insurance liabs, related DAC and related intangible assets) in the same way that a realized gain/loss does. The related adj to those measurements shall be recognized in OCI if, and only if, the unrealized gains/losses are recognized in OCI
What are the required disclosures under IFRS 4?
- Info that identifies and explains the amounts in its FS arising from IC
- Info that enables users of its FS to evaluate the nature and extent of risks arising from IC
Discuss Redesignation of financial assets
When an insurer CiAP for insurance liabs, it is permitted to reclassify some or all of its financial assets so that they are measured at fair value
