Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p64
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 64/101)
Character Range: 207869–210921

to propose as an indicator of public sector arrangements to be accounted for as insurance contracts, the extent to which an arrangement participant is responsible for paying a contribution. This is on that basis that it provides evidence of a contract-like relationship between an arrangement participant and the public sector entity. The Boards decided that references to 'fully-funded' and 'substantially self-funded' are probably not useful because they are difficult to interpret, but that relevant contributions would be expected to be more than, for example, a relatively small co-payment.

     BC201        Consistent with this perspective, the Boards also decided that the extent to which a contribution from an arrangement participant is an indicator of public sector arrangements to be accounted for as insurance contracts is dependent on:

          (a) the strength of the association between the contribution and the risks covered – for example, a motor vehicle owner (arrangement participant) contributes in return for being covered for risks associated with road use; and

          (b) the extent to which the contribution is substantive relative to the risks being transferred.

     BC202        The Boards also noted the level of contributions from arrangement participants that might be sought in any given period could be affected by the extent to which the public sector entity is currently fully funded. That is, contributions might be higher or lower in any given period to either make up for earlier funding shortfalls or use up existing surpluses.[23] Accordingly, a medium-term view (rather than a year-by-year view) might need to be taken when assessing whether contributions from participants are substantive relative to the risks being transferred in any given period.

Management practices and assessing financial performance

Assessing financial performance (in general)

     BC203        The Boards noted that an indicative criterion in IPSAS 42 for being eligible to apply the insurance approach is that the entity assesses its financial performance and financial position of an arrangement on a regular basis where it is required to report internally on the financial performance of the arrangement, and, where necessary, to take action to address any under-performance by the arrangement [IPSAS 42.AG25(d)].

     BC204        The Boards noted that NZASB ED 2018-7 included a proposed indicator similar to this indicative criterion in IPSAS 42 [ED 2018-7.AG1.6(d)]. The Boards also noted that the AASB Discussion Paper (2017) included a proposed indicator similar to this indicative criterion in IPSAS 42, but that the Discussion Paper proposal placed an emphasis on the assessment of claims performance [AASB DP.E14(b)].

     BC205        The Boards observed that there was little feedback on this proposal in response to NZASB ED 2018-7 and a mixed response to the AASB Discussion Paper proposal, with most respondents saying the criterion was not helpful in distinguishing insurance activities from other types