Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p42
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 42/101)
Character Range: 146702–149749

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 they do not regard risk margins as appropriate to their circumstances.

          (c) Some stakeholders had assumed that their risk adjustments under AASB 17/PBE IFRS 17 would be the same as their risk margins under AASB 1023/PBE IFRS 4, while others had yet to consider whether they would have a risk adjustment under AASB 17/PBE IFRS 17 and, if they did, whether it would be more or less than any risk margin they currently apply.

Alternative approaches considered by the Boards

     BC119        The Boards considered the following possible approaches regarding the risk adjustments requirement:

          (a) Approach 1: require public sector entities to apply AASB 17/PBE IFRS 17 with no modifications or guidance;

          (b) Approach 2: require public sector entities to have a zero risk adjustment; and

          (c) Approach 3: require a particular confidence level for determining risk adjustments for liabilities for incurred claims for all public sector entities.

Approach 1: Apply AASB 17/PBE IFRS 17 with no modifications or guidance

     BC120        The Boards considered the possible advantages of applying AASB 17/PBE IFRS 17 with no modifications or guidance.

          (a) It could be considered consistent with the principle of only making modifications to the IFRS Standards if there is a strong case based on substantive differences in circumstances of public sector entities (compared with the entities for which IFRS Accounting Standards are developed).

          (b) It would allow for different risk adjustments to be recognised to suit the nature of each entity's claims liabilities, which would be helpful since different public sector entities hold claim liabilities with different characteristics. For example, very long-tail, relatively predictable claims (such as regular income support payments), would result in a relatively small risk adjustment. In contrast, claims subject to future legal judgements might result in a relatively large risk adjustment.

          (c) Different public sector entities hold different views on whether they should have a risk adjustment above zero in measuring their claim liabilities based on their circumstances. Each entity would be able to determine its position consistent with its own facts and circumstances, including its objectives, management philosophy, and level of risk aversion.

          (d) A for-profit public sector entity could recognise a risk adjustment on the basis that it expects to profit from bearing risk, while a not-for-profit entity might not recognise a risk adjustment because it does not seek to profit from bearing risk.

     BC121        The Boards considered the possible disadvantages of applying AASB 17/PBE IFRS 17 with no modifications or guidance.

          (a) IFRS 17 was