GENERAL MODEL APPROACH OF MEASUREMENT APPROACHES UNDER IFRS 17 INSURANCE CONTRACTS AND AN APPLICATION

Accounting is the process of recording, classifying, reporting, analyzing and interpreting the financial transactions. This process is intended to provide useful information about a business entity’s financial status to users of financial statements. In Turkey, accounting is governed by a common set of accounting rules. These are basic concepts of accounting, generally accepted accounting principles, national and international accounting and financial reporting standards and legislation provisions. Ministry of Treasury and Finance, Capital Markets Board of Turkey and Public Oversight Accounting and Auditing Standards Authority currently require publicly owned companies to follow these rules. Over time, all these organizations aim to align their regulations with International Accounting and Financial Reporting Standards (IASs and IFRSs). Since 2001, the International Accounting Standards Board (IASB) has worked on a set of these global standards. The IASB is an independent international accounting standard setter based in London. On 18th May of 2018, the IASB issued a new standard on insurance contracts. This new Standard, IFRS 17 Insurance Contracts, establishes a new accounting model and new disclosure requirements. IFRS 17 can be seen as one of the most significant changes to insurance accounting. It establishes principles for the recognition, measurement, presentation and disclosure for insurance contracts issued, reinsurance contracts held and investment contracts with discretionary participation features issued. The objective of IFRS 17 is to ensure that entities provide relevant information in a way that faithfully represents insurance contracts. This information gives a basis for users of financial statements to evaluate the effect that contracts within the scope on the financial position, financial performance and cash flows of an entity. IFRS 17 should be applied for annual periods beginning on after January 1, 2021. IFRS 17 shall supersede the previous IFRS 4 Insurance Contracts. According to the IASB, IFRS 4 was an interim standard that did not provide transparent and comparable information about the effect of insurance contracts on financial statements. The previous standard also allowed entities to use their national accounting requirements. So, the IASB undertook a project to make insurers’ financial statements more transparent, comparable and consistent. IFRS 17 is the result of this project. IFRS 17 brings a lot of innovative and important changes to insurance accounting. One of these changes is about measurement approaches. According to