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IFRS 17 - Accounting for Revenue - YouTube
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if you are already familiar with the key
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IFRS 17 concepts and requirements but if
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you want to some another technical
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details and see how they are going to
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play out in the specific situations then
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this series of videos is for you in
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popovers neck from three dogs and this
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is a min on IFRS 17 this episode is
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about the accounting treatment of
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revenue under the building force
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approach currently the premium is the
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salient measure of an insurance
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company's size and performance monitor
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it closely by investors regulators and
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other stakeholders yet the treatment of
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premiums under the new insurance context
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by a virus is going to be fundamentally
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different that it is now under the
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current standard revenue directly
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corresponds to premiums why are the IRS
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17 we've cut the revenue recognition
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mechanism that doesn't follow the
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premium collection pattern the new
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standard defines revenue and sale
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reduction in the liability for the
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future coverage because of services
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provided in the period looking at it
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from a different angle we recognize in
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revenue this portion of premiums that
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corresponds to the reduction the
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liability let's see how it works with an
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example year in and year out insurance
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companies collect premiums pay claims
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expenses incurred acquisition costs but
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also run of the risk related to the
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insurance portfolios
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an excess of premiums of all these
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elements includes a profit component and
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this profit component is wait for it the
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contractual service March the CSM well
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this picture may not be the best
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explanation of the season but for one
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thing is intended to demonstrate the
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revenue recognition so I simplified the
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CSM as I said earlier revenue is a
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reduction in the liability for the
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future coverage because of services
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provided indicated this reduction is
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driven by four components let's look at
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them one by one first clients and
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expenses expected to be paid in the
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period ii acquisition cost recognized in
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the period third release of the risk
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adjustment and form release of you know
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what I mean there it is of the spheres
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the revenue recognition pattern related
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to the acquisition costs is different
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than that for clients with expenses
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revenue related to claims and expenses
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corresponds to the projected cash flows
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while in case of the acquisition costs
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it's not cash flows based let me say it
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again revenue related to claims that
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expenses corresponds to the projected
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cash flows while in case of the
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acquisition costs it's not cash flows
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based the International Accounting
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Standards Board decided to include this
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exception eliminated a one revenue peak
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related to the initial acquisition
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apparently they don't like that they
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won't mix after all they contract you
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know world to live near the davidic a
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right also we may ask what has happened
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to their premiums all-in-all premiums
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are part of the lab biggest cash flow
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projections
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so if revenue is reduction in the lab
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data and surely the premiums should be
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taken into account right and yes they
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are taken into account but to the CSM
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mechanism that spreads profits over the
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insurance period without regard to the
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premiums collection time before we move
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to the accounting to knowledge is
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already let's look at the relation
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between premium revenue in case of the
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unit
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under arrest for the whole amount of
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this premium is recognized as revenue
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while under IFRS 17 we only take into
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account these four components I talked
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about earlier typically most of the
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Union linked premium represents an
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investment component and this investment
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component doesn't go through an income
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statement at all in this episode I would
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like to focus on the accounting journal
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entries so let's see how revenue will be
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accounted for under the new standard
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expected claims and expenses are debited
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to the fulfilment cash flows component
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of the insurance liability on the other
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side these amounts are credited to the
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revenue account when it comes to the
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portion of revenue related to the
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acquisition costs it is made of two
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parts the first part is made of
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deposition costs paid before debt
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related insurance liability is
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recognized such costs are deferred and
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then when the related insurance
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liability is recognized
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they are debited to the season the
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second part is made of the projected
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acquisition costs that will be paid in
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future such costs constitute the
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fulfillment casuals and are enjoy
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accounted for in the same way that the
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other projected expenses
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it's subsequent time points the quasi
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DAC is amortized to expenses with the
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same amount recognized as a revenue I
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say quasi because we do not have an
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explicit tag asset in the balance sheet
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at the same time a reduction in path
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payment cash flows related to the
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acquisition costs it's recognized as
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revenue with the actual acquisition cost
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payments accountant to expenses so
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coming back to our list of journal
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entries we have got acquisition costs
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leads to revenue from the fulfillment
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cash flows and acquisition costs related
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to the quasi attack amortization then we
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have teddies of the risk adjustment and
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last but not least the release of the
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CSM we should also remember that the
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portion of the risk adjustment movement
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that does not represent the revenue goes
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to the CSM let's wrap up over here just
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analyzed the revenue is driven by four
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elements with the acquisition cost
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element being condition I made two parts
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also the acquisition costs and the
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related revenue this recognized over the
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issuance period in a systematic way so
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it doesn't follow the actual payments to
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conclude this episode of zoom in on IFRS
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17 I would like to recommend two things
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you can do to stay on top of the game
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first you may join the IRS 17 LinkedIn
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group dedicated to the implementation of
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the new insurance contracts IRS second
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you may visit our website where you can
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find a plethora of materials including
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videos presentations and artists you
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will find the relevant links below in
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the description of this video thank you
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for watching and I hope I wanted your
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appetite for more I have Rs 70 in the
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insights
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