IFRS-4: INSURANCE CONTRACT

IAS-24: RELATED PARTY DISCLOSURE

Group Members

MK Jahid Shuvo 1397

Md. Kabir Hasan 1393

Saidur Rahman 1390

Ruhul Amin 1391

Abdullah Al Masum 1387

Insurance Contract

◦ IFRS 4 was issued as part of the IASB’s Insurance Project as

an interim standard in response to an urgent need for

improved disclosure and accounting for insurance contracts

ahead of the 2005 European adoption of IFRS.

◦ A second phase of this project is now underway with a view

to producing a final standard to replace IFRS 4

Consistent with IASB Framework

Consistent with principles in current standards (unless good

reason to depart)

Creation of global standard for insurance contracts improving

comparability and transparency

A contract under which one party (the insurer) accepts significant

insurance risk from another party (the policyholder) by agreeing

to compensate the policyholder if a specified uncertain future

event (the insured event) adversely affects the policyholder

The following are examples of contracts that are

insurance contracts, if the transfer of insurance risk is

significant

◦ insurance against theft or damage to property

◦ insurance against product liability, professional liability,

civil liability or legal expenses

◦ life insurance and prepaid funeral plans

◦ life-contingent annuities and pensions

◦ Surety Bonds, Fidelity Bonds, Performance Bonds and BidBonds

◦ Disability and medical cover

◦ Product Warranties. Product warranties issued by another

party for goods sold by a manufacturer, dealer or retailer are

within the scope of this IFRS.

◦ Reinsurance contracts

IFRS 4 does not apply to the following insurance contracts:

Product warranties issued directly by a manufacturer, dealer or

retailer

employers’ assets and liabilities under employee benefit plans

retirement benefit obligations reported by defined benefit

retirement plans

contractual rights or contractual obligations that are contingent

on the future use of, or right to use, a non-financial item, as

well as a lessee’s residual value guarantee embedded in a

finance lease

financial guarantee contracts unless the issuer has previously

asserted explicitly that it regards such contracts as insurance

contracts and has used accounting applicable to insurance

contracts

contingent consideration payable or receivable in a business

combination

direct insurance contracts that the entity holds

The final project from the convergence era is to introduce a

new accounting Standard for insurance contracts.

As the accounting for insurance contracts is the reverse of

many other forms of accounting, because cash is received in

advance of the service being delivered.

The old IASs inherited by the IASB provided no answer to

the challenges of the insurance sector. That is why when the

IASB began its work it introduced IFRS 4 Insurance

Contracts as a stopgap measure while it completed a more

fundamental reform of insurance accounting.

This project was finalized in 2015 and we are working in

close co-operation with the insurance sector to bring much-

needed transparency to the plethora of accounting practices

used throughout the industry

IFRS 4 has two main principles for disclosure which require

an insurer to disclose:

Information that identifies and explains the amounts in its

financial statements arising from insurance contracts.

Information that enables users of its financial statements to

evaluate the nature and extent of risks arising from insurance

contracts.

They are-

1. Insurance risk

2. Financial risk

3. Significant risk

Insurance Risk

◦ Death

◦ Illness

◦ Disability

◦ loss of property due to damage or theft

◦ failure to debtor to make payment when due

◦ The risk of potential future change in one or more of:

Interest rates

Financial instrument price

Commodity price or rate

Credit rating or credit indices

Any other variable, except for non-financial variable that

specific to a party to the contract

◦ Insurance risk is significant if, and only if, an insured event

could cause the issuer to pay amounts that are significant in

any single scenario.

IAS 24 covers those parties which are related and details a

number of exclusions.

Parties are related if one party can control or exercise

significant influence over the other.

Disclosure is required for:

◦ Upwards and downwards control relationships

◦ Details of the transactions

Determining

Related Parties

Control

Significant influence

Parents

Subsidiaries

Fellow subsidiaries

Joint ventures

Other entities controlled by owners or key

management

Key management

personnel

Sales and purchases of good and services

Balances arising as a result at the Balance Sheet date

Loans, commitments and contingencies

Transactions with directors

Agency arrangements

Share capital transactions

two entities simply because they have a director or other

member of key management personnel in common;

two venturers simply because they share joint control over a

joint venture;

providers of finance, trade unions, public utilities, government

departments and agencies simply by virtue of their normal

dealings with the entity;

customers, suppliers, franchisors, distributors, agents with

whom an entity transacts a significant volume of business,

merely by virtue of the resulting economic dependence

Company A acquires 25% of Company B, regular supplier, on 1/9/2016 for which it equity accounts.

During the year ended 31/12/2016 Company B makes sales to A of 2,000. The total sales till 1/9/2016 were 1,100.

The companies are related from 1/9/2016 and 900 should be disclosed as a related party transaction.

Arm’s length

Cost

Cost plus

Re-sale price Free of charge

Methods

Nature of the relationships

Types of transaction

Volume and value of the transaction

Pricing policies

Balances at year end

In our presentation, we have tried to include

the very basic items of IFRS 4 and IAS 24. We

think that with our objectives to provide basic

information is fulfilled.

Thank You

Any question?