IFRS 4: Insurance Contract & IAS 24: Related Party Disclosure

1.  IFRS-4: INSURANCE CONTRACT
 IAS-24: RELATED PARTY DISCLOSURE

2. Group Members
 MK Jahid Shuvo 1397
 Md. Kabir Hasan 1393
 Saidur Rahman 1390
 Ruhul Amin 1391
 Abdullah Al Masum 1387

3. Insurance Contract

4. ◦ 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

5.  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

6. 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

7.  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 Bid
Bonds

8. ◦ 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

9. 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

10.  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

11.  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.

12.  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

13. 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.

14. They are-
1. Insurance risk
2. Financial risk
3. Significant risk

15. Insurance Risk
◦ Death
◦ Illness
◦ Disability
◦ loss of property due to damage or theft
◦ failure to debtor to make payment when due

16. ◦ 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

17. ◦ 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.

19.  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

20. Determining
Related Parties
Control
Significant influence
 Parents
 Subsidiaries
 Fellow subsidiaries
 Joint ventures
 Other entities controlled by owners or key
management
Key management
personnel

21.  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

22.  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

23. 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.

24. Arm’s length
Cost
Cost plus
Re-sale price Free of charge
Methods

25.  Nature of the relationships
 Types of transaction
 Volume and value of the transaction
 Pricing policies
 Balances at year end

26. 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.

27. Thank You
Any question?