1.

List and discuss in detail the key differences between IFRS 4 and IFRS 17, and the rational for
the amendment and replacement of IFRS 4 by IFRS 17.

IFRS standards are established in order to have a common accounting language, so business and
accounts can be understood and compared from company to company and from country to country.
IFRS 4 explains how to disclose insurance contracts, but to put it simple, there are too many issues
with IFRS 4 to make a good comparisement among insurance companies and to compare an
insurance company to a non-insurance company, therefore IFRS 17 is needed. This gives a basis
for users of financial statements to assess the effect that insurance contracts have on the entity’s
financial position, financial performance and cash flows.

Differences between IFRS 4 & IFRS 17

IFRS 4 was introduced in 2004 and was meant to be an interim standard, so there were limited
changes to existing insurance accounting practices. Insurance companies were still able to measure
similar insurance contracts with different accounting policies. These practices evolved based on
specific insurance contracts in a specific country, which also resulted into a deviation between
accounting models used by the insurance industry and IFRS standards applied by other industries.
This results in limited comparison possibilities between insurance and non-insurance sectors.

IFRS 17 requires companies to measure insurance contract on updated estimates and assumptions
which reflects timing of cash flows (the discount rate) and the uncertainty of insurance contracts
(the risk adjustment). Insurers need to indicate the expected (yet unearned) profit with the CSM,
and only recognize the profit when it delivers the insurance service. This is in line with other
industries, for example a factory makes a profit when he delivers a good, not earlier. All this
information will make it easier to evaluate the performance of insurers against each other, over
time and among industries!
  The amendments to IFRS 17 are effective for annual periods beginning on or after
January 1, 2023. Earlier application is permitted. They are to be applied
retrospectively. The amendments to IFRS 4 defer the requirement to apply IFRS 9
to annual periods beginning on or after January 1, 2023

 The rational for the amendment and replacement of IFRS 4 by IFRS 17

Since IFRS 17 Insurance Contracts was issued in May 2017, the Board has been
monitoring the implementation and has learned about concerns and implementation
challenges. The Board had previously indicated that it would consider whether additional
action is needed to address matters arising during implementation

At the October 2018 meeting of the Board a list of 25 potential amendments to the standard was identified
and the criteria against which any possible amendment would be considered were agreed

An Exposure Draft of proposed amendments was published on June 26, 2019 with comments
requested by September 25, 2019.

n the red liberations re this project on possible amendments to IFRS 17 following the end
of the comment period, the IASB refined its proposals and took additional feedback by
constituents on board resulting in the final amendments issued on June 25, 2020.

The main changes resulting from Amendments to IFRS 17 and Extension of the
Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4) issued on June 25,
2020 are:

Deferral of the date of initial application of IFRS 17 by two years to annual periods
beginning on or after January 1, 2023 and change the fixed expiry date for the temporary
exemption in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, so
that entities would be required to apply IFRS 9 for annual periods beginning on or after
January 1, 2023.

Additional scope exclusion for credit card contracts and similar contracts that provide
insurance coverage as well as optional scope exclusion for loan contracts that transfer
significant insurance risk.

Recognition of insurance acquisition cash flows relating to expected contract renewals,

including transition provisions and guidance for insurance acquisition cash flows
recognized in a business acquired in a business combination.
Clarification of the application of contractual service margin (CSM) attributable to
investment-return service and investment-related service and changes to the
corresponding disclosure requirements. Extension of the risk mitigation option to include
reinsurance contracts held and non-financial derivatives.

Amendments to require an entity that at initial recognition recognizes losses on onerous

insurance contracts issued to also recognize a gain on reinsurance contracts held.
Simplified presentation of insurance contracts in the statement of financial position so
that entities would present insurance contract assets and liabilities in the statement of
financial position determined using portfolios of insurance contracts rather than groups
of insurance contracts. Additional transition relief for business combinations and
additional transition relief for the date of application of the risk mitigation option and the
use of the fair value transition approach.

 Several small amendments regarding minor application issues.

Although the IASB had in its discussions leading up to the Exposure Draft voted
unanimously to leave the annual cohort requirement in IFRS 17 unchanged and did
not ask a question on it in the draft, some respondents commented on the IASB’s
decision to retain the requirements unchanged. The IASB, therefore, included in its
deliberations the question of annual cohorts in February 2020 once more.
However, it came to the same conclusion as before and decided to retain,
unchanged, the annual cohort requirement in IFRS 17.

The amendments to IFRS 17 are effective for annual periods beginning on or after
January 1, 2023. Earlier application is permitted. They are applied retrospectively.
Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to
IFRS 4) defers the fixed expiry date of the amendment to annual periods beginning
on or after January 1, 2023
2. Discuss in detail about A. insurance contract measurement models with practical
illustrations that incorporate major insurance contract features and shows initial
and subsequent measurement of insurance contracts.

On subsequent measurement, the carrying amount of a group of insurance contracts at

the end of each reporting period shall be the sum of the liability for remaining
coverage and the liability for incurred claims. The General Measurement Model
(GMM) is the standard approach to calculate/estimate liabilities for the insurance
contract under IFRS 17. This model focuses on providing key information on the
expected cash flows and profitability of the insurance contracts.

The measurement model is the part of the model that examines relationship between
the latent variables and their measures. The structural model is the relationship
between the latent variables. To test the measurement model, you typically saturate
the structural model, by allowing all the latent to correlate

A financial asset or financial liability is measured initially at fair value. Subsequent

measurement depends on the category of financial instrument. Some categories are
measured at amortized cost, and some at fair value.

- Updated value of the insurance contract, includes options and guarantees,

consistent with market information

- Standard does not define ‘options and guarantees’, consequently changes in value
of options and guarantees treated the same as other changes in cash flows and
discount
 1. What are the ethical issues related to Barbara Brockman’s idea?
The ethical issue related to Barbara Brockman's idea here is should one honestly
and fairly states the financial statement or one mislead the financial statement in
order to get some benefit for the company.
2. What would you tell Barbara Brockman?
Although Barbara Brockman’s idea might give us a chance to get the loans from the
bank,
I, as the chief account for Brockman Guitar, still would reject her proposal. I would
tell her that it is time to let us do what the bank need us to do, honestly and fairly
prepare all the statements they require us to do. With the correct information, the
bank might find the real problem of our company.

Our company manufactures top-quality steel string folk guitars, and it is a good
company. We need figure out why we were experiencing capital problems. It is
time to let us really know where we allocated the money in the company. Trying to
hide the problem and borrow more money will lead us to worse situation. In case
that we invest those borrowed money to the wrong direction because we are not
clear where had we done wrong in the first place. It is time to face the problem and
we will figure one way out together if we believe our company provide good
products.

.
 Global Trading company
Statement of cash flows
for the year ended 31’st December, 2018
Cash Flows from Operating Activitie

 Loss before tax ---------------------------------------------------(1,800)

 Adjustments
 Finance charge--------------------------------------------------------1,000
Depreciation ------------------------------------------------------3,700
Loss on disposal of property -----------------------------------------100
Increase in inventory (12,500-4,600) ---------------------------(7,900)
Increase in trade receivables (4,500-2000)---------------------(2,500)
Increase in trade payables (4,700-,200)--------------------------4 500
Cash Flows from Operations -------------------------------------(6,900)
Interest paid --------------------------------------------------- (1,000)
Taxation paid --------------------------------------------------- (1,900)
 Net cash outflow from investing activities --------------------(9,800)

Cash Flows from Investing Activities

Sale of property ---------------------------------------------------- 8,500
Net cash inflow from investing activities -------------------- 8,500
Cash flows financing activities

Issue of shares for cash ----------------------------------------- 1,200

Capital repayment of finance lease ---------------------------(2,100)
Dividend paid --------------------------------------------------- 700
Net cash inflow from financing --------------------------------1,600)
Decrease in cash and cash equivalents ------------------------(2,900)
Cash and Cash equivalent b/d ----------------------------------1,500
Cash and Cash equivalent b/d ---------------------------------(1400)

 Notes to the Cash Flow Statement

 1. Loss on disposal of property

Balance b/d 8,800

Depreciation charge (200)
Carrying Amount
Balance b/d ---------------------------------------------------------8,800
Depreciation charge---------------------------------------------- (200)
Carrying Amount------------------------------------------------- 8,600
Proceeds from Sale------------------------------------------------ 8,500
Loss on Disposal---------------------------------------------------- 100
2. Leasehold plant
Balance b/f------------------------------------------2,500
Depreciation ------------------------------------- (1,800)
700
Acquired during the year---------------------------5,800
Balance c/d -----------------------------------------6,500

 Capital repayment of finance lease

Obligation at start (2000+800)--------------------------------2,800
Acquisition during year--------------------------------------- 5,800
Capital repayment-------------------------------------------- (2,100)
Obligation at close(4,800+1,700) ------------------- ------- 6, 500
3. Taxation
Liability b/f (2500+800)------------------------------ 3,300
Relief for the year------------------------------------ (700)
2,600
Tax paid-------------------------------------------------- (1,900)
Balance c/d (1200-500)-------------------------------- 700