1 malcolm brown presentation 2 on ifrs

8/8/2019 1 Malcolm Brown Presentation 2 on IFRS

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Southern African Conference22-25 July07 Sun City

International financialreporting standard (IFRS)

What is IFRS?

How does it effect the medical schemes?

Issues arising out 2005 and 2006 Annual

Financial Statement reporting

Matters for attention in 2007 year.


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What is IFRS?

Statements issued by the International

Accounting Standards Board

South African Accounting Standards follow

the IFRS framework Certain organisations are obliged to report

ito IFRS.

Auditors are required to report if auditees

have complied with the IFRS statements intheir annual financial statements


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What is IFRS?

IFRS comprises 8 standards at this stage

and is growing.

Reports are expected to be presented ito

the statements from effective dates. IFRS4 for example is being introduced in

phases. First phase applied from 2005.

There are 16 International Accounting

Standards which also have to be compliedwith covering different aspects of

accounting and business transactions.


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How does this effect medicalSchemes?

Act requires that annual financial

statements are prepared in terms of

generally accepted accounting practices.

These practices include IAS and IFRSstatements of accounting

Bill has been drafted to require medical

schemes to report in terms of International

Financial Reporting Standards whichtherefore includes IAS and IFRS

statements.


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The BHF Southern African Conference 22-25 July07 Sun City

Issues arising out of 2005and 2006 reporting

Medical schemes are classified asinsurance businesses and must report itoIFRS4 which applies to insurancebusiness.

Each contract between a member and thescheme is classified as an insurancecontract.

Each provider contract (eg capitation) in

which risk is transferred from the schemeto the provider is classified as re-insurance.


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There are 2 types of managed care costs:

Ones in which providers are paid for services

rendered to beneficiaries

Ones in which the managed care organisationprovides a service aimed at managing the

provision of services such as pre-authorisation

and case management.

The first is treated as a claims cost

The second could be treated as a cost of

managing claims or as administration

costs.


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Capitation fees and arrangements where

risk is transferred to a provider group does

not remove the ultimate responsibility for

the provision of care from the scheme. If the provider is unable to provide

contracted services then the scheme will

have to pay another provider for providing

the same services.


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SAICA and CMS have jointly prepared an

accounting guide to assist the schemes in

preparing their AFS.

In 2005 a sample set of accounts wasincluded in the guide

SAICA may not ito their arrangements with

the International Accounting Standards

Board interpret the IFRS statements. Guideline for 2006 therefore did not

include a sample set of accounts.


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Schemes required to interpret the IFRSthemselves.

Administrators requested assistance from

scheme auditors in interpretation Different auditors had different approaches

Resulted in a variety of Incomestatements, in particular, being presentedto members.

CMS rejected AFS of many schemes astheir interpretation differed from that of theschemes


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Issues arising from2005AFS reporting

Accounting policies. Use relevant only.

Offsetting of fees paid to asset managers

against investment income not allowed.

Materiality of expenses - disclosure

Interest paid on savings to be disclosed

separately. Not deducted from investment

income

Treatment of realised and unrealised

profits and losses on investments


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Issues arising from2005AFS reporting

Correlation between the Balance Sheet,

Income Statement, Cash Flow and the

notes at line item level

Wash sale transactions Risk management report

Related party transactions with particular

emphasis on trustees


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Issues arising 2006 AFSreporting

Alternate adopted by some schemes as

rejected by the CMS (alternate 1)

Risk measurement in the income

statement. Gross contributions

Savings contributions

Net contributions received

Expense incurred in transferring risk to aproviders. Capitation agreements.

Contribution for risk carried by the scheme


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Claims expenses (alternate1 )

Gross claims incurred

Less paid by savings account members

Net claims IBNR adjustment ( prior year and current year)

Plus recovery under risk transfer arrangements

Claims incurred by the scheme for own risk

Less recovery under risk transfer arrangements Managed care management services (costs

incurred in managing claims)

Claims expense


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Alternate 2 adopted by some schemes accepted

by the CMS

Gross contributions

Less savings portion

Net contributions

Claims Expense

Gross claims incurred

Less paid by savings account members

Net claims IBNR adjustment ( prior year and current year)

Plus recovery under risk transfer arrangements

Claims incurred by the scheme


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Risk Transfer Arrangements

Payments made to providers under risk transfer

arrangements

Less: Recovery under risk transferarrangements

Net effect of Risk Transfer Arrangements

Administration

Managed care costs management services


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Trustees as Related parties. Trustees are related parties

Trustee report required to reflect by trustee -remuneration paid to the trustee and expenses

incurred on his/her behalf in fulfilling duties astrustees

AFS reflect the same in total and not by trustee

AFS also to include aggregate membershipcontributions received from trustee for himself

and dependents plus any family member who isa member of the scheme in their own right

as well as aggregate benefit payments made bythe scheme on trustee families behalf.


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Matters for attention in 2007year

SAICA and CMS to prepare a guideline for 2007

year.

Need to prepare guideline which reflects alternate

approaches to the interpretation of IFRS which are

acceptable to Schemes, Scheme Auditors and

CMS.

Guideline to take into account the new IFRS7

Increased disclosure around financial instrument

IAS32 and insurance risk IFRS4.

Financial managers and auditors to meet and

discuss the implications so as to reduce pressure

at year end.


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IFRS

QUESTIONS

1 malcolm brown presentation 2 on ifrs

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