Scope (Chapter 2)Scope (Chapter 2)

Scope (Chapter 2)

B2.1 Some contracts require a payment based on climatic, geological or other physical variables. (Those based on climatic variables are sometimes referred to as ‘weather derivatives’.) If those contracts are not within the scope of AASB 17 Insurance Contracts, they are within the scope of this Standard.

AusB2.1.1 Notwithstanding paragraph B2.1, for public sector entities applying AASB 4 Insurance Contracts, contracts that require a payment based on climatic, geological or other physical variables and are not within the scope of AASB 4 or AASB 1023 General Insurance Contracts are within the scope of this Standard.

B2.2 This Standard does not change the requirements relating to employee benefit plans that comply with AASB 1056 Superannuation Entities and royalty agreements based on the volume of sales or service revenues that are accounted for under AASB 15 Revenue from Contracts with Customers.

B2.3 Sometimes, an entity makes what it views as a ‘strategic investment’ in equity instruments issued by another entity, with the intention of establishing or maintaining a long-term operating relationship with the entity in which the investment is made. The investor or joint venturer entity uses AASB 128 Investments in Associates and Joint Ventures to determine whether the equity method of accounting shall be applied to such an investment.

B2.4 This Standard applies to the financial assets and financial liabilities of insurers, other than rights and obligations that paragraph 2.1(e) excludes because they arise under contracts within the scope of AASB 17.

AusB2.4.1 Notwithstanding paragraph B2.4, for public sector entities applying AASB 4, this Standard applies to the financial assets and financial liabilities of a public sector insurer, other than rights and obligations that paragraph Aus2.1.2 excludes because they arise under contracts within the scope of AASB 4.

B2.5 Financial guarantee contracts may have various legal forms, such as a guarantee, some types of letter of credit, a credit default contract or an insurance contract. Their accounting treatment does not depend on their legal form. The following are examples of the appropriate treatment (see paragraph 2.1(e)):

(a) Although a financial guarantee contract meets the definition of an insurance contract in AASB 17 (see paragraph 7(e) of AASB 17) if the risk transferred is significant, the issuer applies this Standard. Nevertheless, if the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting that is applicable to insurance contracts, the issuer may elect to apply either this Standard or AASB 17 to such financial guarantee contracts. If this Standard applies, paragraph 5.1.1 requires the issuer to recognise a financial guarantee contract initially at fair value. If the financial guarantee contract was issued to an unrelated party in a stand-alone arm’s length transaction, its fair value at inception is likely to equal the premium received, unless there is evidence to the contrary. Subsequently, unless the financial guarantee contract was designated at inception as at fair value through profit or loss or unless paragraphs 3.2.15–3.2.23 and B3.2.12–B3.2.17 apply (when a transfer of a financial asset does not qualify for derecognition or the continuing involvement approach applies), the issuer measures it at the higher of: