What's the issue?

Under a financial guarantee contract, the issuer is required to reimburse a loss incurred by the holder. A common example of a financial guarantee contract is a parent company providing a guarantee over its subsidiary's borrowings.

Because these contracts transfer significant insurance risk, they typically meet the definition of an insurance contract.

With the replacement of IFRS 4 Insurance Contracts by IFRS 17 Insurance Contracts, the accounting for these contracts may change significantly. Companies now need to apply either IFRS 17 or IFRS 9 Financial Instruments to these contracts.

What's the impact?

The impact on the financial statements will differ depending on whether a company applies IFRS 17 or IFRS 9.

The key impacts include:

  • the measurement of the contract liability; and
  • the timing of profit recognition.

What’s next?

Companies need to assess now whether to apply IFRS 17 or IFRS 9 to financial guarantee contracts they have issued.

Read our talkbook (PDF 560 KB) to help with this assessment, in which we share our insight and practical guidance, including a worked example of accounting for a financial guarantee contract under both IFRS 17 and IFRS 9.


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