Financial Sector (Collection of Data) determination No. 21 of 2005
Basis of preparationBasis of preparation
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Basis of preparation
Unless specifically mentioned in these instructions insurers are to following the recognition and measurement requirements of the Australian accounting standards in completing this form.
The interpretation and required measurement basis for items listed in the form are specified in these instructions and also outlined in the introduction to the reporting package.
Market value measurement of assets
AASB 1023 requires net market value to be used in measuring assets that are deemed to be ‘integral to the general insurance activities’. However for the purposes of regulatory reporting market value can be used (i.e. ignore transactions costs).
Market value or fair value has the same meaning as defined in the Australian Accounting standards. Market value is defined for accounting purposes as a subset of fair value, where fair value means the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's-length transaction, and is determined as follows:
- The quoted market price in an active and liquid market (i.e. market value); or
- When there is infrequent activity in a market, the market is not well established, small volumes are traded relative to the asset or liability to be valued, or a quoted market price is not available – an estimate of a price for the asset or liability in an active and liquid market.
AASB 1023 provides that assets that are deemed not to be ‘integral to the general insurance activities’ of the insurer are able to be valued using historical cost rather than net market value. This basis can be applied for the purposes of this form.
Market value of charged/encumbered assets
If an asset is in any way subject to a charge, covenant, encumbrance, option to purchase or any other arrangement by way of agreement or statute, that restricts the market value of the asset, the market value needs to reflect the existence of these arrangements. For example, if the insurer has agreed to deliver an asset to a purchaser at a price below the arms length market value, the market value cannot exceed the agreed price. This may also have relevance to this form.