Section 17 of the IFRS for SMEs Accounting Standard governs the accounting for Property, Plant, and Equipment (PPE). It requires assets to be recognized when future economic benefits are probable and the cost can be measured reliably. Key aspects include cost measurement at acquisition, depreciation methods over useful life, and recognition of impairment.
Under Section 17 of IFRS for SMEs, the cost model is predominantly used, where the asset is measured at cost less accumulated depreciation and impairment losses. The revaluation model is not generally available under IFRS for SMEs, simplifying the accounting process for smaller entities.
IFRS 17 provides consistent principles for all aspects of accounting for insurance contracts. It removes existing inconsistencies and enables investors, analysts and others to meaningfully compare companies, contracts and industries.
IAS 17 was reissued in December 2003 and applies to annual periods beginning on or after 1 January 2005. IAS 17 will be superseded by IFRS 16 'Leases' as of 1 January 2019.
From 2023, the new insurance standard, IFRS 17 Insurance Contracts, will apply for all companies. This is because it applies to contracts, regardless of the issuer, and therefore all companies could be affected, not just insurers.
Is IFSR17 mandatory or voluntary? IFRS17 is now mandatory for insurance companies operating within jurisdictions, like the UK, where the standard is now law. Those companies will need to comply with the standards through their financial reporting practices.
All entities apart from public companies, state- owned companies and certain non-profit companies are allowed to apply the IFRS for SMEs. Profit companies, other than state owned or public companies, whose public interest score for the particular financial year is at least 350.
The objective of IAS 17 is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation to leases. licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights.
The 90% rule in leasing is an accounting guideline for classifying leases, stating that if the present value (PV) of a lessee's minimum lease payments equals or exceeds 90% of the leased asset's fair market value (FMV), the lease should be treated as a finance lease (or capital lease) rather than an operating lease, reflecting essentially a purchase for accounting purposes. This rule helps determine if the lease transfers substantially all the risks and rewards of ownership, requiring balance sheet recognition of the asset and liability.
IFRS 17 results in insurers disclosing two key profit drivers in the statement of profit or loss: the insurance service result (reflects the underwriting performance) and financial results (reflects the investing performance, including both IFRS 17 insurance finance income and expenses, and investment results from ...
Insurance Risk Classifications
What does IFRS 17 involve? Deferral of new business profits in line with the service provided. Under the default model, a contractual service margin (CSM) is created on the balance sheet which is effectively a stock of future profit.
The scope of tenant improvements is often limited to the rented unit, and the changes are typically beneficial only to the current tenant. On the other hand, building improvements involve enhancements made to the building or property as a whole.
In this instance, revenue is recognized when all four of the traditional revenue recognition criteria are met: (1) the price can be determined, (2) collection is probable, (3) there is persuasive evidence of an arrangement, and (4) delivery has occurred.
IFRS allows for the recognition of internally generated intangible assets where certain conditions are met. IFRS for SMEs does not allow for the recognition of these intangible assets. Borrowing costs under IFRS for SMEs are expensed as opposed to IFRS which requires them to be capitalised where applicable.
Term-of-year leases last for a fixed period and automatically terminate on the date specified as the end of the lease term.
If the lease meets any of the criteria, then it must be recorded as a finance lease. The five criteria relates to a bargain purchase option, transfer of ownership, net present value of lease payments, economic life, and whether the asset is specialized.
Application of ASC 842 results in lessees classifying their leases (or separate lease components) as either financing or operating leases and lessors classifying their leases (or separate lease components) as sales-type, direct-financing or operating leases.
Key considerations for IFRS 17 compliance
There are four main areas to consider when approaching IFRS 17 implementation, including the reassessment and regrouping of existing insurance contracts, data management, actuarial modelling, and accounting integration and allocations.
The objective of Section 17 is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can see information about an entity's investment in its property, plant and equipment and the changes in such investment.
IFRS 17 is applicable for NHS bodies from 2025/26. It provides accounting guidance for entities who are issuers of insurance contracts. The new standard is applied retrospectively from 1 April 2024, restating comparatives as though IFRS 17 had always applied.
The European definition of SME follows: "The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro." In order to ...
In addition, there are certain accounting treatments that are not allowable under the SMEs Standard. Examples of these disallowable treatments are the revaluation model for property, plant and equipment and intangible assets, and proportionate consolidation for investments in jointly controlled entities.
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