Modification and derecognition of a contract

Learning objectives

• Explain that a modification that would have changed the scope or the separation at inception results in derecognition and recognition of a new contract.L2
• Determine the treatment of a modification and of an extinguishment of a contract from the facts of a case.L3

Normative references

• IFRS 17 §72A modification results in derecognition of the original contract and recognition of a new contract if, had the modified terms been included at inception, the contract would have been outside the scope, separated differently, had a substantially different contract boundary or been included in a different group, or if the modified contract changes its direct participation status or ceases to be eligible for the premium allocation approach; the exercise of a right included in the terms of the contract is not a modification.
• IFRS 17 §74An entity derecognises an insurance contract when, and only when, it is extinguished (the obligation expires or is discharged or cancelled) or when any of the conditions in para. 72 are met.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• The parties to an insurance contract of Tilleul SA change its terms. Had these new terms existed from inception, the contract would have been excluded from the scope of IFRS 17 (case fact). Which treatment applies to the modified contract?L3