INSURANCE CONTRACTS (IFRS 4)
BACKGROUND AND INTRODUCTION
IFRS 4 is the first Standard from the International Accounting Standards Board (IASB) on insurance contracts. The extent of guidance in IFRS 4 is quite modest in comparison with the more comprehensive overhaul of insurance accounting that is envisaged by the IASB in the future. IFRS 4 was introduced in time for insurance companies to comply with the adoption of International Financial Reporting Standards (IFRS) in Europe and elsewhere in 2005. The Standard is designed to make limited improvements to accounting practices and to provide users with an insight into the key areas that relate to accounting for insurance contracts.
All entities that issue policies that meet the definition of an insurance contract in IFRS 4 have to apply the Standard. Additionally, the Standard applies to financial instruments with so-called discretionary participation features. The Standard does not apply to other assets and liabilities of the insurance companies, such as financial assets and financial liabilities, which fall within the scope of IAS 39. Similarly, it does not address the accounting required by policyholders. Additionally, IFRS 4 sets out new disclosure requirements for contracts that qualify as insurance, including details about future cash flows.
DEFINITION OF KEY TERM
(in accordance with IFRS 4)
Insurance contract. A contract under which one party (the insurer) accepts significant insurance risk from another party ...