Profit recognition for annuity contracts (IFRS 17)

Date recorded:


The Committee received a submission about determining how to recognise unearned profit as revenue based on the services an entity provides to policyholders of annuity contracts in scenario where an entity includes unearned profit in the measurement of insurance contracts and subsequently recognises it as revenue as the entity provides services. The purpose of this paper was to prepare the Committee for the future discussion by providing an overview of the applicable IFRS 17 requirements and other background related to those requirements.

Content of the paper

The paper outlined the main features of IFRS 17 and gave an overview of the general measurement approach. It then discussed recognising the contractual service margin in profit or loss which is applicable to the question in the submission. The appendix to the paper included examples considered by the Transition Resource Group (TRG) for IFRS 17 that illustrate the application of the IFRS 17 requirements.

Committee discussion

Not many Committee members made comments on the paper. A few Committee members raised concerns about the authority of the TRG. One Committee member asked whether entities could apply the TRG conclusion to deduct an accounting policy. The staff responded that the TRG is a useful reference that entities could use as a basis and as an analogy but entities can never elevate TRG conclusions to the level of IFRS Standards. Another Committee member commented that the large accounting firms refer to the TRG in their accounting manuals and they do not allow deviation from the TRG conclusions. In practice, the large accounting firms give a lot of importance to the TRG conclusions—much more than they should given that the conclusions do not form part of IFRS Standards. 

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