| 80A. | An unconditional contractual obligation will meet the definition of an insurance contract under FRS 103 if the LLP accepts significant insurance risk (typically mortality risk). This will be the case if the total amount payable by the LLP may be significantly affected by how long the former member lives (eg, the LLP agrees to make payments only for as long as the former member is alive, and there is no terminal payment). For accounting purposes, such annuities fall within the scope of FRS 103, unless they are conditional on future service (in which case section 21 of FRS 102 applies). |
| 80B. | In practice, obligations to make post-retirement payments to members will often be set out in the members' agreement, and will often reflect significant mortality risk18 (eg, because the LLP agrees to make payments only for as long as the former member is alive, and there is no terminal payment). Where this is the case, it is likely that the LLP will historically have accounted for the obligations as provisions within the scope of FRS 12 Provisions, Contingent Liabilities and Contingent Assets. On adoption of FRS 102, the obligations will fall within the scope of FRS 103; however FRS 103 will permit the LLP to continue its previous accounting policies.19 Nevertheless, the LLP should consider whether it needs to provide any additional disclosures in order to meet the requirements of FRS 103. |
| 80C. | If an annuity is an unconditional contractual obligation for the LLP to deliver cash or a financial asset to a member, and the LLP has not accepted significant insurance risk, the annuity will meet the definition of a financial liability and will fall within the scope of section 11 or section 12 of FRS 102. Paragraph 11.9 of FRS 102 specifies conditions that must be met for such a financial liability to fall within the scope of section 11. If these conditions are not met, the financial liability will fall within the scope of section 12. Profit-dependent annuity payments will not meet the conditions in paragraph 11.9 of FRS 102. Therefore, if such annuity payments arise under a contract, and they do not expose the LLP to significant insurance risk, they will be accounted for in accordance with section 12 of FRS 102. |
| 81. | Deleted |
| 18 Appendix II to FRS 103 gives guidance on the definition of an insurance contract. It explains how insurance risk can be distinguished from financial risk, and discusses mortality risk as a form of insurance risk). |
| 19 For practical purposes, the outcome should be the same as if the entity had applied section 21 of FRS 102, because the requirements of section 21 of FRS 102 are similar to those of FRS 12. |
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