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Using old or outdated assumptions does
not provide useful financial information.
A current, updated measure of insurance
contract liabilities provides more
relevant and useful information.
Using the “expected return on assets
held” as the discount rate to measure
unrelated insurance contract liabilities
does not reflect the risks relating to
Using an asset-based discount rate only
where applicable improves the relevance
of the information received.
There is diversity in practice and a lack
of transparency about profit recognition
patterns from insurance contracts.
The unearned profit arising from a
contract will be recognized as the
insurance coverage and related services
are delivered, significantly improving
transparency, and providing additional
metrics to evaluate performance.
Reporting revenues on a cash or near-
cash basis is inconsistent with all other
Revenue will reflect the services
provided, and exclude deposits, like any
other industry, increasing comparability
Engage with a consultant as
soon as possible. Existing
financial and operating
systems may not be able to
handle the massive volumes
of data collection, retention,
and automation that the
forthcoming standard will
require. Business practices
on the management and
pricing of products (as well
as management reporting)
may also potentially change.
Communicate the changes
and potential extent of
impact internally to senior
management or the board of
directors as soon as possible.
Potential changes will also
impact financial budgets and
require board approval.
Start considering the
This is crucial – nobody likes
surprises, in general.
Work together with other
industry peers. Remember
that everyone is in the same
boat and working towards the
same goal. Reach out to your
industry peers to understand
how they are implementing
the standard and share
solutions on how to overcome
Engage with the Institute’s
Standard Setting Department.
We are currently reaching
out to companies that will
be impacted by the standard
to understand the potential
effects of, and discuss the
remaining topical matters
relating to, the forthcoming
standard. Get in touch with
the SSD (outreachhk@hkicpa.
org.hk) if you have anything
to discuss. The Institute will
conduct further educational
and implementation activities
when the standard is issued.
Key advances in the forthcoming accounting for insurance contracts
Source: IASB Investor Perspectives – February 2015
November 2016 49
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