International Financial Reporting Standards_guide.pdf

CHAPTER 38
Insurance Contracts
(IFRS 4)
38.1 OBJECTIVE
This standard is the first phase of the IASB’s two-phase approach to insurance contracts. It is
a stepping stone that provides for limited improvements to accounting and requires significant
disclosure in respect of insurance contracts. The additional disclosures help users of financial
statements understand the amount, timing, and uncertainty of future cash flows from
insurance contracts. IFRS 4 requires entities to provide users with information about amounts
recognized in financial statements in the absence of a global accounting standard.
Accounting practices for insurance contracts are diverse and differ from the accounting practices
applied by other sectors. Furthermore, the industry is highly regulated and treatment is
not consistent between different jurisdictions and different kinds of insurance contracts.
When the IASB embarked on the insurance accounting project it was clear that all the aspects
relating to insurance contracts could not be dealt with in the short or medium term. As a
consequence, the project was split into two phases. The second phase will address recognition
and measurement of insurance contracts.
38.2 SCOPE OF THE STANDARD
Entities should apply this IFRS to:
■ insurance contracts (including reinsurance contracts) that it issues;
■ reinsurance contracts that it holds; and
■ financial instruments that it issues which contain a discretionary participation feature.
This standard does not apply to financial assets and financial liabilities within the scope of
IAS 39.
This IFRS does not address:
■ accounting aspects related to other assets and liabilities of an insurer;
■ product warranties (IAS 37);
■ employers’ assets and liabilities (IFRS 2 and IAS 19);
■ contingent consideration payable or receivable in a business combination (IFRS 3);
■ direct insurance contacts that an entity holds (currently there is no accounting guidance
for policyholders under direct insurance policies);
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