Document ID: chunk:federal_register_of_legislation:F2021C00205:body:0:p30
Version: federal_register_of_legislation:F2021C00205
Segment Type: other
Provision Reference: 
Character Range: 77450–80267

definition of an insurance contract even if the provider does not agree to carry out repairs or replace parts.
B7 Applying the Standard to the contracts described in paragraph B6 is likely to be no more burdensome than applying the Australian Accounting Standards that would be applicable if such contracts were outside the scope of this Standard:
(a) There are unlikely to be material liabilities for malfunctions and breakdowns that have already occurred.
(b) If AASB 15 applied, the service provider would recognise revenue when (or as) it transfers services to the customer (subject to other specified criteria). That approach is also acceptable under this Standard, which permits the service provider (i) to continue its existing accounting policies for these contracts unless they involve practices prohibited by paragraph 14 and (ii) to improve its accounting policies if so permitted by paragraphs 22–30.
(c) The service provider considers whether the cost of meeting its contractual obligation to provide services exceeds the revenue received in advance. To do this, it applies the liability adequacy test described in paragraphs 15–19 of this Standard. If this Standard did not apply to these contracts, the service provider would apply AASB 137 to determine whether the contracts are onerous.
(d) For these contracts, the disclosure requirements in this Standard are unlikely to add significantly to disclosures required by other Australian Accounting Standards.

Distinction between insurance risk and other risks
B8 The definition of an insurance contract refers to insurance risk, which this Standard defines as risk, other than financial risk, transferred from the holder of a contract to the issuer. A contract that exposes the issuer to financial risk without significant insurance risk is not an insurance contract.
B9 The definition of financial risk in Appendix A includes a list of financial and non-financial variables. That list includes non-financial variables that are not specific to a party to the contract, such as an index of earthquake losses in a particular region or an index of temperatures in a particular city. It excludes non-financial variables that are specific to a party to the contract, such as the occurrence or non-occurrence of a fire that damages or destroys an asset of that party. Furthermore, the risk of changes in the fair value of a non-financial asset is not a financial risk if the fair value reflects not only changes in market prices for such assets (a financial variable) but also the condition of a specific non-financial asset held by a party to a contract (a non-financial variable). For example, if a guarantee of the residual value of a specific car exposes the guarantor to the risk of changes in the car's physical condition, that risk is insurance risk,