Division Scope (paragraphs 2-7)

Contracts that require a payment based on climatic, geological or other physical variables are commonly used as insurance policies. (Those based on climatic variables are sometimes referred to as ‘weather derivatives’.) Under such contracts, the payment made is based on the amount of loss to the insured entity. Rights and obligations under insurance contracts that do not principally involve the transfer of financial risks are excluded from the scope of this Standard by paragraph 2(d). The payout under some contracts that require a payment based on climatic, geological or other physical variables is unrelated to the amount of an insured entity’s loss. Such contracts are excluded from the scope of this Standard by paragraph 2(h).

This Standard does not change the requirements relating to employee benefit plans that comply with IAS 26 Accounting and Reporting by Retirement Benefit Plans and royalty agreements based on the volume of sales or service revenues that are accounted for under IAS 18 Revenue.

Sometimes, an entity makes what it views as a ‘strategic investment’ in equity instruments issued by another entity, with the intention of establishing or maintaining a long-term operating relationship with the entity in which the investment is made. The investor entity uses IAS 28 Investments in Associates to determine whether the equity method of accounting is appropriate for such an investment. Similarly, the investor entity uses IAS 31 Interests in Joint Ventures to determine whether proportionate consolidation or the equity method is appropriate for such an investment. If neither the equity method nor proportionate consolidation is appropriate, the entity applies this Standard to that strategic investment.

This Standard applies to the financial assets and financial liabilities of insurers other than rights and obligations arising under insurance contracts that are excluded by paragraph 2(d).