Financial Crime World

Accounting Standard PSAK 74 Insurance Contracts: Key Requirements and Implications

The Indonesian Accounting Standards Board (DSAK-IAI) has issued a new accounting standard, PSAK 74 Insurance Contracts, which supersedes PSAK 62 Insurance Contracts. This standard aims to provide a more comprehensive framework for recognizing, measuring, presenting, and disclosing insurance contracts.

Scope

PSAK 74 applies to all entities that issue or hold insurance contracts, regardless of whether they are insurance companies or not. This means that non-insurance entities may also be within the scope of the standard if they enter into insurance contracts.

Key Requirements

  • Recognition: An entity must recognize a group of insurance contracts from the earliest of three events: the beginning of the coverage period, the date when the first payment becomes due, or when the group becomes onerous.
  • Measurement:
    • Insurance contracts can be measured under either the general model or the simplified Premium Allocation Approach.
    • The general model requires entities to estimate future cash flows and adjust for time value of money, financial risks, and non-financial risk.
  • Level of Aggregation: Entities must identify portfolios of insurance contracts with similar risks and manage them together. Each portfolio must be divided into at least three groups based on the likelihood of becoming onerous.

Implications

The new standard has significant implications for entities that issue or hold insurance contracts. Companies may need to change their accounting policies, procedures, and systems to comply with PSAK 74. The standard also requires entities to present insurance contracts differently in the statement of financial performance, which may impact their financial reporting.

Entities That Apply Amendments After Publication

Notably, entities that apply the 2020 amendments after the publication of the 2022 amendments are required to also apply the 2022 amendments for that period. This means that companies must comply with both sets of amendments simultaneously.

For more information on PSAK 74 Insurance Contracts and its implications, please refer to the IFRS in Focus Newsletter.