2022 AVBOB Integrated Annual Report - FINANCIALS

107107 FINANCIAL STATEMENTS Continued AVBOB MUTUAL ASSURANCE SOCIETY AND ITS SUBSIDIARIES NOTES TO THE SUMMARISED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2022 3. Accounting policies (continued) 4. Critical accounting estimates and judgements 4.1 Policyholder liabilities 4.2 Other assumptions and estimates - Provision for deaths not yet reported - Valuation of investment property - Valuation of subsidiaries - Employee benefit obligations - Assets at fair value through profit and loss with unobservable inputs - Deferred tax asset - Impairment losses on financial assets - Lease liabilities and right-of-use assets Other assumptions and estimates included in the annual financial statements for the year ended 30 June 2022 addresses the following items: The value of the policyholder liabilities is based on estimates that are in turn based on assumptions. The assumptions represent best estimates of the expected future experience and are based on actual experience and reasonable expectations of what may happen in future. The future experience will probably differ from these assumptions, which may in turn require the value of policyholder liabilities to be adjusted. The full details of these valuation assumptions for estimates are set out in note 15 of the notes to the summarised financial statements. The potential impact to the Group is that the majority of the contracts issued by the Group have a coverage period of more than one year and will be measured under the GMM. Other contracts that are short term in nature with a coverage period of less than a year will be accounted for under the PAA. An IFRS 17 Working Committee has been established to identify and implement systems and process changes in anticipation of the implementation of the standard. The Committee provides monthly updates regarding the progress of implementation of IFRS 17. Furthermore, the Group's IFRS 17 implementation team which consists of the core finance, actuarial and information technology team as well as internal and external specialists provide daily updates regarding the progress of the project. The Groups IFRS 17 implementation team is currently testing data to identify gaps in order to incorporate refinements to comply with the requirements of both measurement models. The next steps for the Group is to finalise the accounting policies and methodologies for the opening balance transition approach that will be applied, and to integrate software to execute the implementation of IFRS 17 in phases. The initial date of application for the Group for IFRS 17 will be 1 July 2023 and the transition date will be the opening balances as at 1 July 2022. (continued) A defining feature of an insurer that is a mutual entity is that the residual interest of the entity is due to a policyholder and not a shareholder. When applying IFRS 17, payments to policyholders form part of the fulfilment cash flows regardless of whether those payments are expected to be made to current or future policyholders. Thus, the fulfilment cash flows of an insurer that is a mutual entity generally include the rights of policyholders to the whole of any surplus of assets over liabilities. This means that, for an insurer that is a mutual entity, there should, in principle, normally be no equity remaining and no net comprehensive income reported in any accounting period. The Group makes estimates and assumptions in respect of assets and liabilities. Estimates and assumptions are re- evaluated on an on-going basis, based on historic experience and other factors, including expectations with regard to future events that are deemed reasonable under the circumstances.