Understanding IFRS 4- Insurance Contract
With few exclusions, IFRS 4 Insurance Contracts apply to all insurance contracts (including reinsurance contracts) issued by a business and all reinsurance contracts it possesses. In light of the IASB's extensive project on insurance contracts, this standard provides a temporary exemption from certain other IFRSs, including considering Changes in Accounting Estimates, Accounting Policies, and Errors when selecting accounting policies for insurance contracts.
IFRS 4 was published in March 2004 and applies to yearly periods beginning on or after January 1, 2005. IFRS 17 will supersede IFRS 4 beginning on January 1, 2023.
A company's insurance and reinsurance contracts, except those expressly covered by other Standards, must comply with IFRS 4. Non-financial assets and liabilities, such as those covered by IFRS 9, are not affected by this rule. In addition, policyholders' accounting is not addressed in this study.
Insurance Contract - Definition
It is a contract in which a party (the insurer) assumes a significant risk from another party (the policyholder) by pledging to reimburse the policyholder party if an undetermined future occurrence (the insured event)harms the policyholder party.
A temporary exception from other obligations, such as the necessity to examine the Conceptual Framework while establishing accounting standards for insurance contracts is granted under IFRS4. Despite this, IFRS 4 states:
1. For contracts that were not in force at the conclusion of the reporting period, the provisions for claims under those contracts are invalid(such as catastrophe and equalization provisions)
2. Accuracy of insured liabilities and asset impairment is as throughout the process.
3. Until the liabilities are discharged, terminated, or expire, an insurer must report insurance obligations in its statement of financial position without recourse to contingent assets.
A 2016 update to IFRS 4 resolves the repercussions of IFRS 9 before adopting IFRS 17.
Adjustments In Accounting Standards
IFRS 4 allows an insurer to amend its accounting rules for contracts if its financial statements reflect information that is more relevant and no less trustworthy or more reliable and no less.
Specifically, an insurer can not use any of the following techniques, but it may continue to use and includ them:
1. Undiscounted insurance liabilities are measured.
2. Calculating contractual rights to future investment ma at a rate that surpasses the market rate
3. Based on comparing current market-based rates for co, their fair worth.
4. Using non-uniform accounting procedures for su obligations.
The purpose of IFRS 4 is to make insurance contracts and the companies that supply them more transparent from a financial reporting perspective (described in IFRS 4 as an insurer). If the insurer's financial statements contains both more trustworthy and relevant data, the IFRS 4 permits it to alter its accounting requirements for insurance contracts.