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Accounting Alert - July 2013

Staying on top of developments

Accounting AlertInsurance contracts exposure draft re-exposed

The International Accounting Standards Board (IASB) has published for comment ED/2013/7 Insurance Contracts, a revised Exposure Draft of proposals for the accounting for Insurance Contracts.

The revised ED confirms the key features of the model exposed in 2010 – requiring a single accounting model for all insurance contracts to be applied at a portfolio level using a current fulfilment value approach that requires an explicit current measurement of expected cash flows and a liability for risk and uncertainty (‘building blocks’). This model prohibits the recognition of profit at initial recognition of an insurance contract.

The IASB has modified this model in five ways, under the revised model:

  • the component of the liability that represents the unearned profit is adjusted for prospective changes in assumptions (‘unlocking’);
  • interest expense is presented separately between profit or loss and other comprehensive income (‘the OCI solution’);
  • insurance contracts where cash flows are contractually linked to underlying items will use the carrying amounts of these items to account for those cash flows (‘the mirroring approach’);
  • a new definition of insurance revenue and expenses is applied for presentation purposes; and
  • a modified full restatement approach is introduced for the first time adoption of the new IFRS.

If adopted, the proposals in the revised Exposure Draft would replace New Zealand Equivalent to International Financial Reporting Standard 4 (NZ IFRS 4), including Appendices C and D.

Comments are due to the New Zealand Accounting Standards Board (NZASB) by 25 September 2013 and to the IASB by 25 October 2013.

Deloitte’s global edition of IFRS in Focus outlines the proposals included in the exposure draft: IFRS in Focus IASB re-exposes proposals on insurance contracts accounting is available for download at:

Additional resources available:

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