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International financial reporting standard (IFRS). What is IFRS? How does it effect the medical schemes? Issues arising out 2005 and 2006 Annual Financial Statement reporting Matters for attention in 2007 year. What is IFRS?. Statements issued by the International Accounting Standards Board

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international financial reporting standard ifrs
International financial reporting standard (IFRS)
  • What is IFRS?
  • How does it effect the medical schemes?
  • Issues arising out 2005 and 2006 Annual Financial Statement reporting
  • Matters for attention in 2007 year.

TheBHFSouthern African Conference22-25 July’07 Sun City

what is ifrs
What is IFRS?
  • Statements issued by the International Accounting Standards Board
  • South African Accounting Standards follow the IFRS framework
  • Certain organisations are obliged to report ito IFRS.
  • Auditors are required to report if auditees have complied with the IFRS statements in their annual financial statements

TheBHFSouthern African Conference22-25 July’07 Sun City

what is ifrs3
What is IFRS?
  • IFRS comprises 8 standards at this stage and is growing.
  • Reports are expected to be presented ito the statements from effective dates.
  • IFRS4 for example is being introduced in phases. First phase applied from 2005.
  • There are 16 International Accounting Standards which also have to be complied with covering different aspects of accounting and business transactions.

TheBHFSouthern African Conference22-25 July’07 Sun City

how does this effect medical schemes
How does this effect medical Schemes?
  • Act requires that annual financial statements are prepared in terms of generally accepted accounting practices.
  • These practices include IAS and IFRS statements of accounting
  • Bill has been drafted to require medical schemes to report in terms of International Financial Reporting Standards which therefore includes IAS and IFRS statements.

TheBHFSouthern African Conference22-25 July’07 Sun City

how does this effect medical schemes5
How does this effect medical Schemes?
  • Prior to 2004 annual financial statements were prepared in terms of South African Standards of GAAP
  • 2005 and 2006 were prepared ito IFRS and IAS statements
  • The bill, if enacted as drafted, will require schemes to continue reporting ito IFRS and IAS.

TheBHFSouthern African Conference22-25 July’07 Sun City

issues arising out of 2005 and 2006 reporting
Issues arising out of 2005 and 2006 reporting
  • Medical schemes are classified as insurance businesses and must report ito IFRS4 which applies to insurance business.
  • Each contract between a member and the scheme is classified as an insurance contract.
  • Each provider contract (eg capitation) in which risk is transferred from the scheme to the provider is classified as re-insurance.

TheBHFSouthern African Conference22-25 July’07 Sun City

how does this effect medical schemes7
How does this effect medical Schemes?
  • There are 2 types of managed care costs:
    • Ones in which providers are paid for services rendered to beneficiaries
    • Ones in which the managed care organisation provides a service aimed at managing the provision of services such as pre-authorisation and case management.
  • The first is treated as a claims cost
  • The second could be treated as a cost of managing claims or as administration costs.

TheBHFSouthern African Conference22-25 July’07 Sun City

how does this effect medical schemes8
How does this effect medical Schemes?
  • Capitation fees and arrangements where risk is transferred to a provider group does not remove the ultimate responsibility for the provision of care from the scheme.
  • If the provider is unable to provide contracted services then the scheme will have to pay another provider for providing the same services.

TheBHFSouthern African Conference22-25 July’07 Sun City

how does this effect medical schemes9
How does this effect medical Schemes?
  • SAICA and CMS have jointly prepared an accounting guide to assist the schemes in preparing their AFS.
  • In 2005 a sample set of accounts was included in the guide
  • SAICA may not ito their arrangements with the International Accounting Standards Board interpret the IFRS statements.
  • Guideline for 2006 therefore did not include a sample set of accounts.

TheBHFSouthern African Conference22-25 July’07 Sun City

how does this effect medical schemes10
How does this effect medical Schemes?
  • Schemes required to interpret the IFRS themselves.
  • Administrators requested assistance from scheme auditors in interpretation
  • Different auditors had different approaches
  • Resulted in a variety of Income statements, in particular, being presented to members.
  • CMS rejected AFS of many schemes as their interpretation differed from that of the schemes

TheBHFSouthern African Conference22-25 July’07 Sun City

issues arising from2005 afs reporting
Issues arising from2005 AFS reporting
  • Accounting policies. Use relevant only.
  • Offsetting of fees paid to asset managers against investment income not allowed.
  • Materiality of expenses - disclosure
  • Interest paid on savings to be disclosed separately. Not deducted from investment income
  • Treatment of realised and unrealised profits and losses on investments

TheBHFSouthern African Conference22-25 July’07 Sun City

issues arising from2005 afs reporting12
Issues arising from2005 AFS reporting
  • Correlation between the Balance Sheet, Income Statement, Cash Flow and the notes at line item level
  • Wash sale transactions
  • Risk management report
  • Related party transactions with particular emphasis on trustees

TheBHFSouthern African Conference22-25 July’07 Sun City

issues arising 2006 afs reporting
Issues arising 2006 AFS reporting
  • Alternate adopted by some schemes as rejected by the CMS (alternate 1)
  • Risk measurement in the income statement.
    • Gross contributions
    • Savings contributions
    • Net contributions received
    • Expense incurred in transferring risk to a providers. Capitation agreements.
    • Contribution for risk carried by the scheme

TheBHFSouthern African Conference22-25 July’07 Sun City

issues arising 2006 afs reporting14
Issues arising 2006 AFS reporting
  • Claims expenses (alternate1 )
    • Gross claims incurred
    • Less paid by savings account members
    • Net claims
    • IBNR adjustment ( prior year and current year)
    • Plus recovery under risk transfer arrangements
    • Claims incurred by the scheme for own risk
    • Less recovery under risk transfer arrangements
    • Managed care management services (costs incurred in managing claims)
    • Claims expense

TheBHFSouthern African Conference22-25 July’07 Sun City

issues arising 2006 afs reporting15
Issues arising 2006 AFS reporting
  • Alternate 2 adopted by some schemes accepted by the CMS
    • Gross contributions
    • Less savings portion
    • Net contributions
  • Claims Expense
    • Gross claims incurred
    • Less paid by savings account members
    • Net claims
    • IBNR adjustment ( prior year and current year)
    • Plus recovery under risk transfer arrangements
    • Claims incurred by the scheme

TheBHFSouthern African Conference22-25 July’07 Sun City

issues arising 2006 afs reporting16
Issues arising 2006 AFS reporting
  • Risk Transfer Arrangements
    • Payments made to providers under risk transfer arrangements
    • Less: Recovery under risk transfer arrangements
    • Net effect of Risk Transfer Arrangements
  • Administration
    • Managed care costs management services

TheBHFSouthern African Conference22-25 July’07 Sun City

issues arising 2006 afs reporting17
Issues arising 2006 AFS reporting
  • Trustees as Related parties.
    • Trustees are related parties
    • Trustee report required to reflect by trustee -remuneration paid to the trustee and expenses incurred on his/her behalf in fulfilling duties as trustees
    • AFS reflect the same in total and not by trustee
    • AFS also to include aggregate membership contributions received from trustee for himself and dependents plus any family member who is a member of the scheme in their own right
    • as well as aggregate benefit payments made by the scheme on trustee families’ behalf.

TheBHFSouthern African Conference22-25 July’07 Sun City

matters for attention in 2007 year
Matters for attention in 2007 year
  • SAICA and CMS to prepare a guideline for 2007 year.
  • Need to prepare guideline which reflects alternate approaches to the interpretation of IFRS which are acceptable to Schemes, Scheme Auditors and CMS.
  • Guideline to take into account the new IFRS7
    • Increased disclosure around financial instrument IAS32 and insurance risk IFRS4.
  • Financial managers and auditors to meet and discuss the implications so as to reduce pressure at year end.

TheBHFSouthern African Conference22-25 July’07 Sun City

slide19
IFRS

QUESTIONS

TheBHFSouthern African Conference22-25 July’07 Sun City