International Financial Reporting Standards The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. Quiz: IFRS 7 and IFRS 4 Joint World Bank and IFRS Foundation train the trainers workshop hosted by the ECCB, 30 April to 4 May 2012 The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation.

Question 1 2 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. To which of the following financial instruments should IFRS 7 be applied: a.insurance contracts b.the majority of interests in subsidiaries, associates and joint ventures accounted for in accordance with IFRS 10, IAS 27 and IAS 28 c.financial instruments within the scope of IFRS 5

Solution 1 To which of the following financial instruments should IFRS 7 be applied: a.insurance contracts b.the majority of interests in subsidiaries, associates and joint ventures accounted for in accordance with IFRS 10, IAS 27 and IAS 28 c.financial instruments within the scope of IFRS 5 3 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 2 The concept of a category of financial instruments is the same as that of a class of financial instruments. a.true b.false 4 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Solution 2 The concept of a category of financial instruments is the same as that of a class of financial instruments. a.true b.false 5 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 3 Entity A, a bank has a category of financial instruments, loans and receivable presented on its statement of financial position. What classes of financial instruments (for IFRS 7 disclosure purposes) could be included in this category? 6 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Solution 3 Entity A, a bank has a category of financial instruments, loans and receivable presented on its statement of financial position. What classes of financial instruments (for IFRS 7 disclosure purposes) could be included in this category? Types of loansfor example, overdrafts, credit cards, mortgages and unsecured loans Types of customerscommercial loans or loans to individuals 7 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 4 An insurer A enters a contract with B in terms of which the insurer undertakes to pay CU1,000 to B in the event of the credit default by C. The client has no relationship with the third party. Does the contract fall within the scope of IFRS 4? 8 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Solution 4 An insurer A enters a contract with B in terms of which the insurer undertakes to pay CU1,000 to B in the event of the credit default by C. The client has no relationship with the third party. Does the contract fall within the scope of IFRS 4? No. Although there is risk transfer, and a specified uncertain future event, the occurrence of the event will not adversely affect B (B has no exposure to C). This is a financial contract. 9 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 5 Same facts as in Question 4, but B periodically advances money to C. The payment of the CU1,000 is not however dependent on any amount being owed to the B at the time of default. Does the contract fall within the scope of IFRS 4? 10 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Solution 5 Same facts as in Question 4, but B periodically advances money to C. The payment of the CU1,000 is not however dependent on any amount being owed to the B at the time of default. Does the contract fall within the scope of IFRS 4? No. Similar to the previous example, there is risk transfer, and a specified uncertain future event. Although in this circumstance, B periodically has exposure to C, there is no certainty that the occurrence of the event will adversely affect B and the contract is not dependent on that adverse affect. This is a financial contract. 11 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 6 Same facts as in Question 4, but the contract stipulates that an amount will only be paid if, and to the extent that B suffers an actual loss. Does the contract fall within the scope of IFRS 4? 12 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Solution 6 Same facts as in Question 4, but the contract stipulates that an amount will only be paid if, and to the extent that B suffers an actual loss. Does the contract fall within the scope of IFRS 4? Yes. Similar to the previous example, there is risk transfer, and a specified uncertain future event. Additionally there is defined event which will adversely affect B, and contractual payout is dependent on, and limited to that adverse effect. 13 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 7 An insurer A enters into a life insurance contract with an insured B. In terms of the contract, the insurer will pay out a sum of CU1, 000 on the death of B. In addition, the contract contains an investment element. In terms of this latter element, A is obliged to pay B an amount on surrender of the contract. At 31/12/X1, A calculates the probability weighted liability under the contract as a whole as CU300. The probability weighted value of the surrender benefit is CU180. The liability for the surrender value is CU200 if the policy were to be surrendered on 31/12/xX. What should the insurer record on its balance sheet? 14 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 7 continued a.Insurance liability CU300 b.Insurance liability CU120 Deposit liability CU180 c.Insurance liability CU120 Deposit liability CU200 d.A choice 15 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Solution 7 a.Insurance liability CU300 Although the insurer can separately identify an amount which may qualify as a deposit component, it would not be permitted to measure this amount separately. This is because the surrender value and the insurance value are mutually dependent – they can only be measured by reference to each other. b.Insurance liability CU120 Deposit liability CU180 c.Insurance liability CU120 Deposit liability CU200 d.A choice 16 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 8 Same facts as in Question 7, but instead of a surrender value, the insurance contract contains an explicit account balance the value of which will be paid out on the earlier of the death of the policyholder, or the surrender of the contract. a.Insurance liability CU300 b.Insurance liability CU120 Deposit liability CU180 c.Insurance liability CU120 Deposit liability CU200 d.A choice 17 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Solution 8 a.Insurance liability CU300 b.Insurance liability CU120 Deposit liability CU180 c.Insurance liability CU120 Deposit liability CU200 An explicit account balance can be separately measured, so the answer to the first test is yes. The second test asks whether all rights and obligations are recognised. Since the value of the account is 200, a value of 180 doesnt recognise all obligations, and therefore the entity must unbundle d.A choice 18 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 9 An insurer has insurance liabilities with a probability weighted value of CU20,000. It has entered into re- insurance contracts which exactly mirror the terms and conditions of 20% of the insurance contracts. What should it record on its statement of financial position: a.Insurance liabilities of CU16,000 (80% of CU20,000) b.Insurance liabilities of CU20,000 and re-insurance assets of CU4,000 c.Insurance liabilities of CU20,000 and re-insurance assets of another amount (insufficient information) 19 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Solution 9 What should it record on its statement of financial position: a.Insurance liabilities of CU16,000 (80% of CU20,000) b.Insurance liabilities of CU20,000 and re-insurance assets of CU4,000 Reinsurance assets and insurance liabilities must be grossed up on the face of statement of financial position even though they represent the same risk c.Insurance liabilities of CU20,000 and re-insurance assets of another amount (insufficient information) 20 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 10 An insurer reporting under IFRS has insurance liabilities in a closed portfolio at 31/12/X1 at a discounted value of CU10,000 (undiscounted CU12,000). At 31/12/X2, the value of these liabilities has changed as follows: increased by CU250 due to the unwinding of present value discount, increased by CU500 due to a decrease in the long term discount rate decreased by CU600 due to expected claims 21 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Question 10 continued What is the correct liability on the balance sheet for the two years: x1x2 a ( – 600) b ( – 600) c ( – 600) 22 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

Solution 10 What is the correct liability on the balance sheet for the two years: x1x2 a ( – 600) b ( – 600) c ( – 600) All the above treatments are acceptable under IFRS 4 23 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

24 Questions or comments? Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation. © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.

25 The requirements are set out in International Financial Reporting Standards (IFRSs), as issued by the IASB at 1 January 2012 with an effective date after 1 January 2012 but not the IFRSs they will replace. The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise. 25 © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK.