Basis of preparationBasis of preparation

Basis of preparation

Unless specifically mentioned in these instructions insurers should follow 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 which are not measured in line with the requirements of Australian accounting standards are specified in these instructions.

Fair value measurement of assets

APRA applies the notion of activities integral to insurance operations for its regulatory reporting[4]. APRA does not follow the classification basis in AASB 1023 ‘General Insurance Contracts’. Therefore, the value of these investments reported in this form may or may not equate to the value of investments deemed to be assets backing insurance liabilities. For APRA regulatory reporting purposes, investments integral to the entity's general insurance activities means[5] investments that are controlled by the entity in the conduct of its general insurance activities.

Investments reported in this form that are integral to the entity's general insurance activities must be measured at fair value. The investments must not be valued at cost. Fair value has the same meaning as defined in the AASB 132 ‘Financial Instruments: Presentation’, that is, 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:

(i) the quoted market price (i.e. bid or ask price) in an active and liquid market; or

(ii) when there is infrequent activity in a market, and 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 – a realistic estimate of fair value on the basis of the results of a valuation technique that makes maximum use of market inputs, and relies as little as possible on entity-specific inputs[6].

For investments integral to general insurance activities, changes in the values at which such investments are measured must be recognised as revenues (or losses) in GRF 310.0 Statement of Financial Performance and GRF 310.3 Investment and Operating Income and Expense in the reporting period in which the changes occur.

Fair 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 fair value of the asset, the value attached to the asset 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 value, the fair value cannot exceed the agreed price. This may also have relevance to this form.