AC 511 T-TH 1:30-3:30

IFRS 4 SUMMARRY
Insurance Contracts
Objective and scope
IFRS 4 applies to insurance and reinsurance contracts that an insurer issues and
reinsurance contracts that it holds. Any entity that issues an insurance contract is an
insurer whether or not it is legally an insurance company. IFRS 4 does not apply to
certain contracts that meet the definition an insurance contract that are covered by other
standards, such as certain product warranties or retirement benefit obligations. IFRS 4
does not apply to accounting for insurance contracts held by policyholders. IFRS 4
allows insurers to continue to use their existing accounting policies for liabilities arising
from insurance contracts as long as the existing policies meet certain minimum
requirements set out in IFRS 4.
Recognition and derecognition of insurance liabilities
An insurance liability arises from a contractual relationship between the insurer and the
policyholder. This contract must exist at the balance sheet date in order to recognise an
insurance liability.An insurer may only remove an insurance liability from its balance
sheet when it is discharged, cancelled or expires.
Disclosure
Disclosure is particularly important for information relating to insurance contracts as
insurers can continue to use local GAAP accounting policies. The diversity of local
GAAP would result in difficulty in comparing the financial performance of insurers
without extensive disclosures.
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.
Explanation of recognised amounts
The standard expands these principles with implementation guidance and certain
minimum disclosures as follows:
Disclosure of the insurers accounting policy for insurance contracts.
Disclosure of the recognised assets, liabilities, income and expense arising from
insurance contracts.
Disclosure of the process used to determine the assumptions that have the
greatest effect on the measurement of the recognised amounts described above
and where practicable, quantified disclosures of those assumptions.
Disclosure of the effects of changes in assumptions used to measure insurance
assets and insurance liabilities, showing separately the effect of each change
that has a material effect on the financial statements.
Reconciliations of changes in insurance liabilities, reinsurance assets and, if any,
deferred acquisition costs.
Nature and extent of risks arising from insurance contracts
An insurer is also required to disclose:
Its risk management objective and policies for mitigating risk arising from
insurance contracts.
Information about insurance risk including information about:
Sensitivity to insurance risk;
Concentrations of insurance risk; and
Actual claims compared to previous estimates (claims development).
In addition, the insurer must disclose information about credit risk, liquidity and market
risk that IFRS 7 would require, except that a maturity analysis can be based on
expected cash flows.

IFRS 11 SUMMARY
Joint Arrangements
Overview
IFRS 11 describes the accounting for a joint arrangement. The investor will be required
to either apply the equity method of accounting or recognize, on a line-by-line basis, its
share of the underlying assets,
liabilities, revenues and expenses. The accounting treatment required will depend on
the substance of the arrangement and the nature of the investors interest in it. The
option to apply proportionate consolidation has been removed. IFRS 11 supersedes the
requirements relating to joint ventures in IAS 31 and SIC 13.
Objective and Scope
To establish principles for financial reporting by entities that have an interest in
arrangements that are
controlled jointly (i.e. joint arrangements).
All entities that are a party to a joint arrangement
Joint arrangement
A joint arrangement is an arrangement of which two or more parties have joint control
and the following characteristics are present:
The parties are bound by a contractual arrangement; and
The contractual arrangement gives two or more of the parties joint control of the
arrangement.
Types and classification of a joint arrangement
A joint arrangement can be classified as a joint operation or a joint venture (refer above
for definitions).
Judgments will need to be exercised when making this classification. In arriving at the
classification, the
parties rights and obligations arising from the arrangement in the normal course of
business must be
assessed. In making this assessment, the following shall be considered:
Structure of the joint arrangement.
When structured through a separate vehicle:
Legal form of the separate vehicle;
Terms agreed by the parties in the contractual arrangement; and
When relevant, other facts and circumstances.
Financial statements of parties to a joint arrangement
Joint operations
A joint operator recognizes in relation to its interest in a joint operation: [IFRS 11:20]
its assets, including its share of any assets held jointly;
its liabilities, including its share of any liabilities incurred jointly;
its revenue from the sale of its share of the output of the joint operation;
its share of the revenue from the sale of the output by the joint operation; and
its expenses, including its share of any expenses incurred jointly.
A joint operator accounts for the assets, liabilities, revenues and expenses relating to its
involvement in a joint operation in accordance with the relevant IFRSs. [IFRS 11:21]
The acquirer of an interest in a joint operation in which the activity constitutes a
business, as defined in IFRS 3 Business Combinations, is required to apply all of the
principles on business combinations accounting in IFRS 3 and other IFRSs with the
exception of those principles that conflict with the guidance in IFRS 11. [IFRS 11:21A]
These requirements apply both to the initial acquisition of an interest in a joint operation,
and the acquisition of an additional interest in a joint operation (in the latter case,
previously held interests are not remeasured). [IFRS 11:B33C]

Joint ventures
A joint venturer is required to recognize its interest in a joint venture as an investment
and shall account for that investment using the equity method in accordance with IAS
28 Investments in Associates and Joint Ventures unless the entity is exempted from
applying the equity method.
A party that participates in, but does not have joint control of a joint venture is required
to account for its interest in the arrangement in accordance with IFRS 9 Financial
Instruments, unless it has significant influence over the joint venture, then it shall
account for it in accordance with IAS 28.

Separate financial statements

Joint operations
The same accounting treatment is required as set out above for a joint operator under
the heading Financial statements of parties to a joint arrangement.
Joint ventures
A joint venture shall account for its interest in accordance with IAS 27 Separate financial
statements.
A party that participates in, but does not have joint control of a joint arrangement shall
account for its interest in a joint venture in accordance with IFRS 9. However, if the
party has significant influence over the joint venture it shall apply IAS 27.

Equity Method vs. Proportionate Consolidation

Under the equity method, only records half of the income from the joint venture on the
income statement-nothing on balance sheet. With the proportionate consolidation
method, the parent companies record half of the liabilities and assets from the joint
venture.