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Gayos, Karina K.

A4A – ACCSPIN

-UNDERSTANDING IFRS 17 -

The first video tackles about the benefits and reasons why IFRS 17 has been developed,
changes brought by the standard to balance sheet and income statement, measurement of
insurance contract liabilities and its components.

The reasons for issuing the standard are the need for a common global insurance
accounting standard, long-term and complex insurance risks are difficult to reflect in the
measurement of insurance contracts and some previous insurance accounting practices
permitted under IFRS 4 did not adequately reflect the true underlying financial positions or the
financial performance of these insurance contracts.

The measurement for initial recognition (paragraphsB36–B95) of insurance contract


liabilities was also elaborated in the video. Moreover, the components of the liability were
introduced such as the future cash flows (FCF), risk adjustment, and contractual service margin
(CSM). That on initial recognition, the entity shall measure the insurance liabilities on the total of
FCF and CSM.

FCF is composed of the estimate of the future cash flows and adjustment to reflect the
time value of money and the financial risks related to the future cash flows, to the extent that the
financial risks are not included in the estimates of the future cash flows. Furthermore, the
discount rate (paragraphs B72–B85) that should be used is the current market-consistent
discount rates.

Risk adjustment for non-financial risk (paragraphs B86–B92) wherein an entity adjust the
estimate of the present value of the future cash flows to reflect the compensation that the entity
requires for bearing the uncertainty about the amount and timing of the cash flows that arises
from non-financial risk.

The contractual service margin (paragraphs B96—B119) is a component of the asset or


liability for the group of insurance contracts that represents the unearned profit the entity will
recognize as it provides services in the future.
An entity shall present separately in the statement of financial position the carrying
amount of group of: insurance and reinsurance contracts that are assets, and insurance and
reinsurance contracts issued that are liabilities.

Recognition and presentation in the statement(s) of financial performance (paragraphs


B120–B136) says that the entity is not required to disaggregate the change in the risk
adjustment for non-financial risk between the insurance service result and insurance finance
income or expense. However, is he does not, it shall include the entire change in the risk
adjustment for non-financial risk as part of the insurance service result.

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