#IFRS 17 - A unique challenge for accountants

IFRS 17 is a new accounting standard that sets out the principles for the recognition, measurement, presentation, and disclosure of insurance contracts. The implementation of IFRS 17 is expected to be challenging for accountants in the following ways:

1. Complex calculations: IFRS 17 requires complex calculations and data processing, which could be challenging for accountants who are not familiar with the new standard.

2. Data availability: The standard requires a significant amount of data to be collected and processed, including historical data, which may not be readily available.

3. IT infrastructure: The implementation of IFRS 17 requires a robust IT infrastructure to support the data processing and calculation requirements.

4. Systems integration: IFRS 17 may require integration with other systems, such as actuarial systems, financial systems, and data warehouses, which can be challenging.

5. Interpretation of the standard: The standard is open to interpretation, and accountants may need to exercise judgment in applying it to different insurance contracts.

6. Stakeholder management: The implementation of IFRS 17 requires coordination with various stakeholders, including auditors, regulators, and investors, which can be challenging.

7. Training: Accountants may need training on the new standard, including its requirements, calculations, and data processing.

Overall, the implementation of IFRS 17 requires significant effort, resources, and coordination, and accountants will need to be prepared to address these challenges.

How can we help? AVC Learning Solutions is pleased to offer a bespoke IFRS 17 solution. A 20 hours' training program that helps you understand the standard better and in a lucid manner.

For specific information, reach out at amit@avclearning.com

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Accounting for derivatives - An Overview

Accounting for derivatives refers to the process of recognizing, measuring, and reporting the financial impact of derivative contracts, such as futures, options, and swaps, in financial statements. The accounting for derivatives involves several key steps:

1. Initial recognition: The derivative contract is recognized on the balance sheet as an asset or liability at its fair value.

2. Fair value measurement: The fair value of a derivative contract is determined based on market prices or discounted future cash flows. The fair value is updated regularly to reflect changes in market conditions.

3. Classification: Derivatives are classified as either held for trading or designated as hedging instruments. The classification affects the way gains and losses are recognized in financial statements.

4. Hedging: If the derivative is designated as a hedging instrument, it must meet certain criteria to be considered effective in reducing risk. The effectiveness of the hedge is assessed regularly to ensure that it continues to meet the criteria.

5. Reporting: Gains and losses from derivatives are recognized in the income statement and reflected in the balance sheet. The presentation of derivative contracts and related gains and losses in financial statements must comply with IFRS requirements.

The accounting for derivatives is complex and requires a thorough understanding of financial markets and instruments. It is important to properly account for derivatives to ensure that financial statements accurately reflect the financial position and performance of an entity.

IFRS 5 Diploma IFRS past exam (Dec 2015)

You are the financial controller of Omega, a listed company which prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Your managing director, who is not an accountant, has recently attended a seminar and has raised a question for you concerning issues discussed at the seminar:

Another delegate was discussing the fact that the entity of which she is a director is relocating its head office staff to a more suitable site and intends to sell its existing head office building. Apparently the existing building was advertised for sale on 1 July 2015 and the entity anticipates selling it by 31 December 2015. The year end of the entity is 30 September 2015. The delegate stated that in certain circumstances buildings which are intended to be sold are treated differently from other buildings in the financial statements. Please outline under what circumstances buildings which are being sold are treated differently and also what that different treatment is. (10 marks)

Proposed Solution:

There are two different ways of treating an asset which is for continued use vs those which are intended for sale.

Under IFRS, Non-current assets held for sale are to be presented separately from other assets. There are conditions for an asset to qualify as a non-current held for sale namely:

- asset is available for sale in its immediate condition; and

- sale is highly probable.

For sale to be highly probable, the following conditions are required to be met:

- management is committed to sell the asset;

- sale is expected to be completed in 1 year from the date of classification;

- asset is actively marketed for sale;

- price is reasonably approximate to fair value;

- no changes in plan to sell are expected;

If an asset is classified as held for sale:

- no depreciation is charged on the asset;

- asset is shown at the lower of carrying amount and the fair value less costs to sell. Any difference between the carrying amount and fair value less costs to sell should be charged as impairment loss.