With the implementation of accounting standard IFRS 4 came the necessity to modify existing practices and create new practices to integrate this standard into existing insurance company policies.
As the International Financial Reporting Standards website states, “The objective of this IFRS is to specify the financial reporting for insurance contracts by any entity that issues such contracts.” This means that the IFRS 4 was expressly created with the intention of having insurance companies make some changes to current methods of reporting. The International Accounting Standards Board believes that the use of IFRS 4 will accomplish two different goals: firstly, the standard will make it easier to compare financial statements from insurance companies to other types of financial statements, and secondly, the standard will help improve the actual reflection of risks in insurance contracts.
Businesses will first have to recognize that a particular situation or contact qualifies under the definition. Using the broadest and most popular way to measure the contract, the building blocks approach, an insurance company would have to then estimate the worth of the contract. IFRS 4 also requires insurance companies to periodically follow up and recalculate the worth of the contract to maintain current value.
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As consultant, project member or developer you know that`s not easy to implement IFRS 4 standard. One of the big challenges are of course the legal regulations but also IT systems of insurance companies are sometimes a bigger challenge than the regulations. With our website insurance-analyzer.com we would like to combine both – regulation and implementation. If you want to join our author community, feel free to contact us.