Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p38
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 38/101)
Character Range: 135640–138802

two separate patterns for revenue recognition. That is, it seems likely that users would be satisfied with all revenue being recognised based on the passage of time or, if significantly different from the passage of time, based on the pattern of risk, which is the basis that applies under the premium allocation approach.

     BC105        The Boards acknowledged that some of the same factors might be relevant to private sector not-for-profit entities; however, they noted there are important distinctions between the public and private sectors that provide a conceptual underpinning for a differential approach between the two sectors, including the following.

          (a)                    Public sector entities typically seek to break even in conducting insurance activities. Not-for-profit entities (outside the public sector) would typically need to rely on their own resources to maintain solvency, which could involve building (and, when necessary, re-building) reserves, by including a profit margin into the pricing of their services. That is, even though these entities may not seek to make a profit from their activities, they would often still generate reserves that are subsequently re-distributed to customers/members. Accordingly, the recognition of a contractual service margin under the general measurement model is likely to be more relevant in a private sector not-for-profit entity context.

          (b)                   All private sector entities that issue insurance contracts in Australia and/or New Zealand, including for-profit and not-for-profit private sector entities, would need to be registered as insurers and would face prudential regulation and need to hold risk-weighted regulatory capital and maintain the potential to generate profits to remain solvent. Public sector entities may have their own self-imposed prudential measures, but are not typically compelled to consider profits as a source of capital on an ongoing basis.

     BC106        The Boards concluded that paragraphs 53 and 69 would be modified to provide public sector entities with an accounting policy choice to always apply the premium allocation approach to measure liabilities/assets for remaining coverage, without the need to consider the eligibility criteria in AASB 17/PBE IFRS 17 paragraphs 53 and 69 on the basis that:

          (a)                    the practical differences between the accounting outcomes of applying the premium allocation approach or the general measurement model are expected not to be material in a public sector context in most cases;

          (b)                   the possible difference between the pattern of recognition of any contractual service margin component of the liability for remaining coverage is unlikely to influence users' decision making in a public sector context;

          (c)                    the costs of establishing and operating a system to produce information that might be needed in applying the general measurement model to every possible scenario that might arise would probably be considerable, and is unlikely to be used by public sector entities for management purposes;