Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p41
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 41/101)
Character Range: 143942–146952

not relevant [AASB DP.BC10].

     BC115        The Boards noted that, in response to the AASB Discussion Paper (2017) proposals:

          (a) some respondents considered that there would be risk adjustments (above zero) and also noted various considerations, including:

               (i) disclosures around the techniques used to determine risk adjustments should be required to help ensure transparency;

               (ii) if the AASB expects risk adjustments to be different from those in the private sector, the implication is that they would be lower (compared with the private sector) and guidance would be needed to help entities make those calculations; and

               (iii) whether it is appropriate to imply that risk adjustments in the public and private sectors should be aligned;

          (b) other respondents considered that there would be circumstances in which a risk adjustment could be zero, such as when:

               (i) there is absolute certainty around the government backing of the best estimate liability; and

               (ii) the liability cash flows are so long term that the volatility is mitigated by long-term investment returns.

     BC116        The Boards noted that some respondents to NZASB ED 2018-7 considered that risk adjustments would not be relevant to many public sector entities and, if they were to be required:

          (a) explicit guidance on determining risk adjustments in the public sector would be needed; and/or

          (b) the Standard should specify that risk adjustments are zero for public sector entities.

     BC117        The Boards noted the comments of respondents to NZASB ED 2018-7, which included the following:

          (a) risk adjustments are predicated on the liability being an estimated amount a third party would likely want to be paid to assume the risk of settling claims, which is akin to an exit price; however, the liabilities will be settled by the entity itself;

          (b) if the entity seeks to fund a liability that includes a risk adjustment, in order to report a break-even result, the entity would need to set levies and other forms of income at amounts that (on average) would be higher than necessary; and

          (c) if the entity is funded to meet a best estimate liability, including a risk adjustment in the liability would automatically result in reported losses, which may never eventuate.

     BC118        The Boards also noted the following feedback received from stakeholder outreach conducted in 2020-21.

          (a) AASB 1023/PBE IFRS 4 is regarded as requiring a risk margin to be included in measuring liabilities for outstanding claims, while AASB 137/PBE IPSAS 19 is generally regarded as not requiring a risk margin to be included in measuring provisions, but can be interpreted as permitting a risk/prudential margin to be included.

          (b) A key reason for some stakeholders choosing to apply AASB 137/PBE IPSAS 19 (rather than AASB 1023/PBE IFRS 4) is that