Contracts entered into by entities that are not insurers may fall within the scope of the new insurance standard.
AASB 17 Insurance Contracts is the most significant new accounting standard to become effective since the last major new standard, AASB 16 Leases. It supersedes AASB 4 Insurance Contracts and fundamentally changes the way insurance contracts are accounted for. The new standard applies to annual reporting periods beginning on or after 1 January 2023.
Understandably, non-insurers may have given the new insurance standard very little thought on the basis that it will not apply to them. While this may be true in many cases, AASB 17 should not be completely ignored as some contracts that non-insurers enter into on a regular basis may fall within the scope of this complex new standard. This is because AASB 17 applies to insurance contracts regardless of the entity that issues them.
In a series of articles, we will explore the scope of AASB 17 with non-insurers in mind. The focus will be on key definitions and concepts, transactions that are explicitly carved out of the scope of the standard, and optional exemptions that allow certain contracts that meet the definition of an insurance contract to be accounted for under another accounting standard.
Part 2: Mandatory scope exclusions
Where a contract meets the definition of an insurance contract but is a type of contract specifically excluded from the scope of AASB 17, it will not be accounted for applying the requirements of AASB 17. Instead, the requirements of another accounting standard must be applied to that contract.
Non-insurers often enter into the types of contracts covered by the mandatory scope exclusions referred to above. It is therefore helpful to be aware of these exclusions to avoid having to do any further detailed assessment under AASB 17, and instead immediately refer to the other standard applicable in the circumstance.
AASB 17 generally applies to the issuer of an insurance contract, not the holder. An entity that owns a fleet of vehicles and takes out insurance over this fleet is the holder and does not apply AASB 17 to this purchased insurance contract.
However, an entity that holds a reinsurance contract to transfer the insurance risk arising from an underlying insurance contract that it has issued will have to apply AASB 17.
The table below lists the mandatory scope exclusions as well as the other accounting standard(s) that applies in the circumstance:
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