EVALUATION OF IFRS 17 INSURANCE CONTRACTS STANDARDS FOR INSURANCE COMPANIES

Year 2017, , 48 - 50, 30.12.2017

Serhat Yanik Ece Bas

https://doi.org/10.17261/Pressacademia.2017.745

Abstract

Objective-
 The new IFRS 17 “Insurance
Contracts” Standard, which could change the accounting of all enterprises
drawing up insurance contracts and the investment contracts with discretionary
participation feature radically, will be applied in the annual reporting periods
starting on January 1, 2021 or after that date, and replace TFRS 4
"Insurance Contracts" standard that is currently in force. This study
examines the IFRS 17 standard from the viewpoint of the insurance companies,
and also discusses the revisions made within the scope of TFRS 4 that is in
force until the start of the application of the IFRS 17 standard, and the
accompanying right of exemption in application of the TFRS  9 "Financial Instruments" standard.
Since there is no sufficient study on this subject in our country, it is
targeted to contribute to understanding of the subject by including application
examples in this study.

Methodology-
This study uses case method, qualitative interview (in-depth interview),
and review method as the research method. The basic reason for selecting this
method is that the method is appropriate for the aim of the study, and an
effective method investigating a special situation based on insurance
companies systematically in the studies on the “Insurance
Contracts” standard.

Findings-
IFRS 17 will be beneficial for both investors and the insurance companies
by requiring recognition of all insurance contracts consistently, and by
solving the comparison problems created by the TFRS 4. IFRS 17 requires an
up-to-date measurement model in which the estimations are measured again in
each reporting period. The measurement is based on the building blocks of the
discounted, probability-weighted cash flows, a risk correction, and a
contractual service margin representing the unearned profit of the contract.
Within the scope of IFRS 17, the enterprises have an accounting policy option
to recognize the changes in the discount rate or the other assumptions related
to the financial risks in the profit or loss, or in the other comprehensive
income. Within the scope of TFRS 4, on the other hand, it will provide all
companies drawing up insurance contracts with an option to recognize the
fluctuation possible to occur when TFRS 9 is applied before implementation of
the new insurance contracts standard in the other comprehensive income
statement instead of profit or loss.

Conclusion-
The IFRS 17 insurance contracts standard will replace TFRS 4, and ensure
the creation of the single and consistent measurement model that meets the
supplementary disclosure requirements intended for increasing the transparency
for all insurance contracts prepared by the companies issuing reports in
accordance with the International Financial Reporting Standards. Within this
scope, the Insurance liabilities will be recognized by using updated values
instead of historical cost, and the readers of financial statements will have
been provided with more effective and accurate information. 

Keywords

Turkish Accounting Standard (TAS), International Financial Reporting Standards, insurance companies, insurance contracts, financial instruments

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