IFRS 17 Financial guarantee contract

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Financial guarantee contract – IFRS 17 Definition: A contract that requires the issuer to make specified payments, to reimburse the holder for a loss it incurs because a specified debtor fails to make a payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee contract


Further explanation Financial guFinancial guarantee contractarantee contract

These contracts meet the definition of an insurance contract. Financial guarantee contract

They are, however, outside the scope of IFRS 17, unless the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used the accounting guidance applicable to insurance contracts. For such contracts, the issuer can choose to apply either IFRS 17 … Read more

Insurance contracts definitions

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Insurance contracts definitions – Here are some of the IFRS 17 Insurance contracts Appendix A definitions. Other not listed here are directly available on IFRS Jargon.

Coverage period –  The period during which the entity provides coverage for insured events. This period includes the coverage that relates to all premiums within the boundary of the insurance contract.

Current service cost – The increase in the present value of the defined benefit obligation resulting from employee service in the current period.

Deposit premium – The premium charged by the insurer at the inception of a contract under which the final premium depends on conditions prevailing over the contract period and so is not determined until the expiry … Read more

Key performance indicator

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Key Performance Indicators (KPIs) are the critical (key) indicators of progress toward an intended result. KPIs provides a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most. As Peter Drucker famously said, ‘What gets measured gets done’.

Managing with the use of KPIs includes setting targets (the desired level of performance) and tracking progress against that target. Managing with KPIs often means working to improve leading indicators that will later drive lagging benefits. Leading indicators are precursors of future success; lagging indicators show how successful the organization was at achieving results in the past.

Good KPIs


Provide objective evidence of progress towards achieving a … Read more

Accounting Policies to First IFRS Financial statements

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Accounting Policies to First IFRS Financial statements – An entity must use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements. Those accounting policies must comply with each IFRSs effective at the end of its first IFRS reporting period, unless there is a mandatory exception to retrospective application or an optional exemption from the requirements of IFRSs.

[IFRS 1, paras 7 – 9]Accounting Policies to First IFRS Financial statements

Note that:

  • An entity may apply a new IFRS that is not yet mandatory if that IFRSs permits early application.
  • The transitional provisions in IFRSs do not apply to a first-time adopter’s transition to IFRSs.

Mandatory Exceptions to Retrospective Application Read more

Hedge accounting

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Hedge accounting – What is this all about?

If investors purchase a security that comprises a high level of risk, they may accompany the purchase with an opposing item (usually a derivative, such as an option or future contract) referred to as a hedge.

This hedge experiences gains in value when the corresponding security (or ‘underlying asset’) sustains losses.

Under traditional accounting practices, a security and its hedge are treated as separate components when priced. Hedge accounting treats them as a single accounting entry that reflects the combined market values of the security and the hedge.

For example, suppose an investor, Jane, holds 10 shares of stock ABC priced at $10 each, worth a total … Read more

Main FS Statements Insurance contracts

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Main FS Statements Insurance contracts – These examples of the main Financial Statements statements demonstrate the requirements in respect of presentation and disclosure according to IFRS 17 Insurance contracts. They also includeMain FS Statements Insurance contracts the requirements (introduced or amended) in respect of presentation and disclosure according to IFRS 9 Financial instruments and IFRS 7 Financial instruments: Disclosures.

It is prepared for illustrative purposes only and should be used in conjunction with the relevant financial reporting standards and any other reporting pronouncements and legislation applicable in specific jurisdictions. Main FS Statements Insurance contracts

Presentation of insurance service result Main FS Statements Insurance contracts

 

IFRS 17 83,
85,
B120 – B127

Clarifications:

Insurance revenue reflects the consideration to

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Sensitivity analysis to market risk

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Sensitivity analysis to market risk – Companies are required to report both qualitatively and quantitatively on their risk management strategies and the internal metrics they use for the calculation and management of risk arising from financial instruments. Sensitivity analysis is a kind of stress test (banking term) with less radical assumptions.

 

IFRS 7 breaks down the risk arising from financial instruments into three broad categories: market risk, credit risk and liquidity risk.

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the company’s income or the value of its financial instruments. Example disclosures are as follows:

IFRS Link

Explanation Sensitivity analysis to market risk

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Key differences between GM and VFA Insurance

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Key differences between GM and VFA Insurance – The Variable Fee Approach (‘VFA’) is a modification of the General Model. The General Model is applied to insurance contracts without participation features or to insurance contracts with participation features that fail the Variable fee scope test. Thus, the VFA is applied to insurance contracts with direct participation features that contain the following conditions at initial recognition:

  1. the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;
  2. the entity expects to pay to the policyholder an amount equal to a substantial share of the returns from the underlying items; and
  3. a substantial proportion of the cash flows the entity expects
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Insurances Classification and Measurement

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Insurances Classification and Measurement – Introduction

(first part from https://en.wikipedia.org/wiki/Insurance) Insurances Classification and Measurement

Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.Insurances Classification and Measurement

An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter. A person or entity who buys insurance is known as an insured or as a policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate the insured in the event of a covered loss.

The Read more

Insurance contracts acquired in the run-off period

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Insurance contracts acquired in the run-off period – An otherwise solvent insurer determines that it wishes to exit from a particular class of insurance contracts, but wishes to continueInsurance contracts acquired in the run-off period underwriting in other classes. This could be the result of strategic considerations, lack of profitability in the to be discontinued class, or a desire to restructure and to focus on the remaining classes. Insurance contracts acquired in the run-off period

Other meanings of run-off in the insurance industry context could be: Insurance contracts acquired in the run-off period

  1. An insurance company will be considered to be in run-off when it ceases to take on-board any new business but will continue to honor existing claims. Usually, when the
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