(paragraphs C3-C5 of IFRS 17)

BC374 To apply IFRS 17 retrospectively, at the transition date an entity is required to:

(a) recognise and measure each group of insurance contracts as if IFRS 17 had always applied [In June 2020, the Board amended IFRS 17 to clarify that an entity recognises and measures any assets for insurance acquisition cash flows as if IFRS 17 had always applied, except that an entity is not required to assess the recoverability of any such assets before the transition date (see paragraphs BC184A‒BC184K)];

(b) derecognise any existing balances that would not exist had IFRS 17 always applied; and

(c) recognise any resulting net difference in equity.

Consistent with retrospective application, the Board noted that an entity would need not only to adjust the measurement of its insurance contracts when first applying the Standard but also to eliminate any items such as deferred acquisition costs and some intangible assets that relate solely to existing contracts. The requirement to recognise any resulting net differences in equity means that no adjustment is made to the carrying amount of goodwill from any previous business combinations.

BC375 The measurement model in IFRS 17 comprises two components:

(a) a direct measurement, which is based on estimates of the present value of future cash flows and an explicit risk adjustment for non-financial risk; and