International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 847
of the existing 32 recommendations. Some of these were temporary, addressing the
transition to an expected credit loss framework, and some are more permanent which
will continue to apply following the adoption of the new accounting standards.
Whilst the EDTF is not a standard setter and its recommendations are not mandatory,
regulators in a number of countries have strongly encouraged their implementation, and
analysts, investors and other stakeholders are showing an increased interest in them.
Whilst some of the recommended disclosures overlap with those required by IFRS 7,
many of them are not included in any other framework or authoritative guidance. Also,
although the recommendations are designed for large international banks, they should
be equally relevant for other banks that actively access the major public equity or debt
markets. Therefore all major banks should assess the availability and quality of data that
are necessary to provide these disclosures and, more generally, the full range of the
EDTF disclosures.
References
1 IFRS 7, Appendix B, Application guidance,
4 Transition Resource Group for Impairment of
para. after main heading.
Financial Instruments, Meeting Summary –
2 IFRS 7, Guidance on implementing, para. after
16 September 2015, IASB, September 2015,
main heading.
para. 48.
3 In September 2010 the IASB replaced the 5 Transition Resource Group for Impairment of
Framework with the Conceptual Framework for
Financial Instruments, Meeting Summary –
Financial Reporting, Chapter
3 of which
11 December 2015, IASB, December 2015,
contains guidance on materiality. However, the
para. 46.
guidance on materiality in IAS 1 has not been
updated to reflect this.
4276 Chapter 50
6 Transition Resource Group for Impairment of 16 Information for Observers (December 2008
Financial Instruments, Meeting Summary –
IASB Meeting), IFRS 7 Financial Instruments:
22 April 2015, IASB, April 2015, para. 57(b).
Disclosures – Minor Amendments (Agenda
7 Transition Resource Group for Impairment of
paper 14), IASB, December 2008, paras. 80 to 88
Financial Instruments, Meeting Summary –
and IASB Update, December 2008.
11 December 2015, IASB, December 2015, 17 IFRIC Update, March 2018.
para. 64.
18 Transition Resource Group for Impairment of
8 Information for Observers (January 2009 IASB
Financial Instruments, Meeting Summary –
Meeting), Proposed amendments on liquidity
22 April 2015, IASB, April 2015, paras. 24 and 25.
risk disclosures (Agenda paper 14B), IASB, 19 Transition Resource Group for Impairment of
January 2009, para. 32.
Financial Instruments, Meeting Summary –
9 Information for Observers (September 2008
22 April 2015, IASB, April 2015, para. 57(a).
IASB Meeting), IFRS 7 Financial Instruments:
20 IFRIC Update, October 2004 and November
Disclosures, Liquidity risk (Agenda paper 2A),
2006.
IASB, September 2008, para.
34(b) and 21 IFRIC Update, January 2015.
Information for Observers (January 2009 IASB
22 IFRIC Update, January 2015.
Meeting), Proposed amendments on liquidity
23 IFRIC Update, March 2016.
risk disclosures (Agenda paper 14B), IASB, 24 Transition Resource Group for Impairment of
January 2009, para. 35(a).
Financial Instruments, Meeting Summary –
10 Information for Observers (September 2008
11 December 2015, IASB, December 2015,
IASB Meeting), IFRS 7 Financial Instruments:
para. 77.
Disclosures, Liquidity risk (Agenda paper 2A),
25 IAS 39, para. 45.
IASB, September 2008, para. 34(c).
26 Information for Observers (March 2007 IFRIC
11 Information for Observers (September 2008
meeting), Current or non-current presentation
IASB Meeting), IFRS 7 Financial Instruments:
of derivatives that are not designated as hedging
Disclosures, Liquidity risk (Agenda paper 2A),
instruments in effective hedges, IASB,
IASB, September 2008, paras. 40 and 41.
March 2007, paras. 14 and 17 and Information
12 Information for Observers (September 2008
for Observers (11 March 2008 IASB meeting),
IASB Meeting), IFRS 7 Financial Instruments:
ED Annual improvements process – Comment
Disclosures, Liquidity risk (Agenda paper 2A),
analysis: IAS
1 Current/non-current
IASB, September 2008, paras. 34(d).
classification of derivatives (Q6), IASB,
13 Information for Observers (September 2008
March 2008, para. 12.
IASB Meeting), IFRS 7 Financial Instruments:
27
Staff Paper (September 2010 IFRS
Disclosures, Liquidity risk (Agenda paper 2A),
Interpretations Committee Meeting),
IASB, September 2008, para. 25.
Current/non-current classification of callable
14 Information for Observers (December 2008
term loan, IASB, September 2010.
IASB Meeting), IFRS 7 Financial Instruments:
28 IFRIC Update, September 2010.
Disclosures – Minor Amendments (Agenda 29 IFRIC Update, January 2011 and Staff Paper
paper 14), IASB, December 2008, paras. 71 to 79
(January 2011 IFRS Interpretations Committee
and IASB Update, December 2008.
Meeting), IAS
1 Presentation of Financial
15 Information for Observers (December 2008
Statements – current/non-current classification of
IASB Meeting), IFRS 7 Financial Instruments:
debt (rollover agreements) – outreach results,
Disclosures – Minor Amendments (Agenda
IASB, January 2011.
paper 14), IASB, December 2008, para. 86.
4277
Chapter 51
Insurance contracts
(IFRS 4)
1 INTRODUCTION .......................................................................................... 4283
1.1
The history of the IASB’s insurance project ................................................ 4283
1.2 The
development
of IFRS 4 ............................................................................ 4284
1.3
Mitigating the impact on insurers of applying IFRS 9 before
applying IFRS 17 ................................................................................................. 4284
1.4
Existing accounting practices for insurance contracts ............................... 4285
1.4.1
Non-life insurance ............................................................................. 4285
1.4.2 Life
insurance
.....................................................................................
4285
1.4.3 Embedded
value
................................................................................
4286
2 THE OBJECTIVES AND SCOPE OF IFRS 4 .........................
......................... 4286
2.1
The objectives of IFRS 4 .................................................................................. 4286
2.2 The
scope
of
IFRS 4 .......................................................................................... 4287
2.2.1
Definitions ........................................................................................... 4287
2.2.2 Transactions
within
the scope of IFRS 4 ...................................... 4288
2.2.3
Transactions not within the scope of IFRS 4 ............................... 4289
2.2.3.A
Product warranties ....................................................... 4290
2.2.3.B
Assets and liabilities arising from employment
benefit plans ................................................................... 4290
2.2.3.C
Contingent rights and obligations related to
non-financial items ....................................................... 4290
2.2.3.D
Financial guarantee contracts .................................... 4290
2.2.3.E
Contingent consideration payable or
receivable in a business combination ........................ 4291
2.2.3.F
Direct insurance contracts in which the entity
is the policyholder ......................................................... 4291
2.2.4
The product classification process ................................................ 4292
3 THE DEFINITION OF AN INSURANCE CONTRACT .................................... 4293
4278 Chapter 51
3.1
The definition ..................................................................................................... 4293
3.2 Significant
insurance risk ................................................................................. 4293
3.2.1
The meaning of ‘significant’ ............................................................ 4294
3.2.2
The level at which significant insurance risk is assessed .......... 4295
3.2.2.A
Self insurance ................................................................ 4296
3.2.2.B Insurance
mutuals
.........................................................
4296
3.2.2.C Intragroup
insurance
contracts
..................................
4296
3.2.3
Significant additional benefits ......................................................... 4296
3.3
Changes in the level of insurance risk ........................................................... 4297
3.4
Uncertain future events .................................................................................... 4298
3.5 Payments
in
kind
...............................................................................................
4299
3.5.1
Service contracts ............................................................................... 4299
3.6
The distinction between insurance risk and financial risk ........................ 4300
3.7 Adverse
effect
on the policyholder ................................................................ 4301
3.7.1
Lapse, persistency and expense risk .............................................. 4302
3.7.2 Insurance
of
non-insurance risks ................................................... 4302
3.8
Accounting differences between insurance and non-insurance
contracts .............................................................................................................. 4302
3.9
Examples of insurance and non-insurance contracts ................................ 4303
3.9.1
Examples of insurance contracts .................................................... 4303
3.9.2
Examples of transactions that are not insurance contracts ...... 4305
4 EMBEDDED DERIVATIVES .......................................................................... 4308
4.1
Unit-linked features ........................................................................................... 4311
5 UNBUNDLING OF DEPOSIT COMPONENTS ................................................ 4312
5.1
The unbundling requirements.......................................................................... 4313
5.2 Unbundling
illustration
......................................................................................
4313
5.3 Practical
difficulties ............................................................................................ 4315
6 DISCRETIONARY PARTICIPATION FEATURES ........................................... 4316
6.1
Discretionary participation features in insurance contracts ..................... 4320
6.2
Discretionary participation features in financial instruments ................... 4321
6.3 Practical
issues ................................................................................................... 4323
6.3.1
Unallocated DPF liabilities which are negative ........................... 4323
6.3.2 Contracts
with
switching features .................................................. 4323
7 SELECTION OF ACCOUNTING POLICIES ................................................... 4324
7.1
The hierarchy exemption ................................................................................ 4325
7.2
Limits on the hierarchy exemption ................................................................ 4326
7.2.1
Catastrophe and equalisation provisions ...................................... 4326
7.2.2 Liability
adequacy
testing
.................................................................
4327
Insurance contracts (IFRS 4) 4279
7.2.2.A
Using a liability adequacy test under existing
accounting policies ....................................................... 4328
7.2.2.B
Using the liability adequacy test specified in
IFRS 4 .............................................................................. 4329
7.2.2.C
Investment contracts with a discretionary
participation feature ..................................................... 4330
7.2.2.D
Interaction between the liability adequacy test
and shadow accounting ............................................... 4330
7.2.3
Insurance liability derecognition ..................................................... 4331
7.2.4
Offsetting of insurance and related reinsurance contracts ....... 4332
7.2.5 Impairment
of
reinsurance assets .................................................. 4332
7.2.6
Accounting policy matters not addressed by IFRS 4 ................. 4333
7.2.6.A
Derecognition of insurance and r
einsurance
assets ................................................................................ 4333
7.2.6.B Impairment
of insurance assets .................................. 4334
7.2.6.C
Gains and losses on buying reinsurance ................... 4334
7.2.6.D Acquisition
costs
...........................................................
4335
7.2.6.E Salvage
and
subrogation .............................................. 4335
7.2.6.F Policy
loans .................................................................... 4335
7.2.6.G Investments
held
in
a fiduciary capacity .................. 4336
8 CHANGES IN ACCOUNTING POLICIES ....................................................... 4336
8.1
Criteria for accounting policy changes ......................................................... 4336
8.2 Specific
issues ...................................................................................................... 4337
8.2.1
Continuation of existing practices .................................................. 4337
8.2.1.A
Measuring insurance liabilities on an
undiscounted basis ........................................................ 4337
8.2.1.B
Measuring contractual rights to future
investment management fees in excess of their
fair value .......................................................................... 4337
8.2.1.C
Introducing non-uniform accounting policies
for the insurance contracts of subsidiaries .............. 4338
8.2.2
Current market interest rates .......................................................... 4339
8.2.3 Prudence
.............................................................................................
4339
8.2.4 Future
investment margins .............................................................. 4340
8.3
Shadow accounting ........................................................................................... 4342
8.4 Redesignation
of
financial assets .................................................................... 4344
8.5 Practical
issues ................................................................................................... 4344
8.5.1