SAP vs. GAAP vs. IFRS

Question 1

How does SAP treatment of goodwill differ from GAAP treatment?

Answer 1

SAP: goodwill is the difference of the statutory surplus and purchase price. This difference (capped at 10% of the purchasing companies capital) is amortized over a period of ten (10) years.

GAAP: goodwill is the difference of the purchase price and fair value. The [amortized] purchase price is regularly evaluated again fair value for impairment.

Question 2

How does the IFRS and SAP definition of an insurance contract differ?

Answer 2

IFRS: A contract which the entity accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely the affects the policyholder.

Question 3

How does the IFRS and GAAP definition of a significant insurance risk differ?

Answer 3

IFRS: if the occurrence of an insured event could cause the entity to pay additional amounts that are significant in any scenario

GAAP: it is reasonably possible that the reinsurer (or insurer) may realize a significant loss from the transaction

The key difference between the IFRS and GAAP definitions is that under IFRS a contract qualifies as having significant insurance risk if any scenario results in a significant loss whereas GAAP requires there to be a reasonable expectation of incurring a loss.