IFRS 4 – Insurance Contracts, Scope and Applicability

Overview

IFRS 4 is the IASB’s first advice on insurance contract accounting – but not the last. A detailed study of insurance contracts is now being conducted.

The Board developed IFRS 4 in response to an urgent requirement for enhanced disclosures about insurance contracts, as well as certain enhancements to recognition and measurement processes, in time for listed firms throughout Europe and abroad to implement IFRS in 2005.

Scope and Applicability

Except for specific contracts covered by other Standards, IFRS 4 applies to all insurance contracts (including reinsurance contracts) that a company issues and holds. It does not apply to an insurer’s other assets and liabilities, such as financial assets and financial liabilities covered by IFRS 9.

Additionally, it does not handle policyholder accounting.

Definition of insurance contract

An insurance contract is defined as “a contract in which one party (the insurer) assumes significant insurance risk on behalf of another party (the policyholder) in exchange for agreeing to compensate the policyholder in the event of a specified uncertain future event (the insured event) having a negative impact on the policyholder.”

Disclosures

As per the IFRS, disclosure is required in given situations:

The following information assists users in comprehending the amounts in the insurer’s financial statements arising from insurance contracts:

Information that assists users in determining the type and scope of risks associated with insurance contracts:

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