Board of Directors Secretariat

Decision of the Board of Directors

Number (70) for the year 2016 dated 2016/6/21 Issuing the Guide for Applying Egyptian Accounting Standards to the Insurance Sector

The Board of Directors of the General Authority for Financial Supervision

Having reviewed the Law on Supervision and Control of Insurance in Egypt issued by Law No. (10) of 1981 and its executive regulations, and amendments thereto,

And Law No. 10 of 2009 on regulating supervision over non-banking financial markets and instruments,

And Presidential Decision No. 192 of 2009 issuing the Basic Statute of the General Authority for Financial Supervision,

And Minister of Investment Decision No. (356) of 2007 regarding the application of Egyptian Accounting Standards to insurance companies, which charged the (Authority) with issuing an explanatory guide on how to apply the aforementioned standards to insurance and reinsurance companies under its supervision,

And Minister of Investment Decision No. (110) of 2015 regarding the Egyptian Accounting Standards included in its first article, which replaced the previous accounting standards issued by Decision No. (243) of 2006 and its amendments,

And Chairman of the Authority Decision No. (1067) of 2015 regarding the formation of a working group to update the Guide for Applying Egyptian Accounting Standards to the Insurance Sector,

And the letter from the Chairman of the Egyptian Insurance Union dated 2016/5/15,

And the approval of the Board of Directors of the General Authority for Financial Supervision in its meeting No. (6) dated 2016/6/21.

---

Decided

(Article One)

Insurance and reinsurance companies subject to the provisions of the Law on Supervision and Control of Insurance in Egypt issued by Law No. (10) of 1981 shall apply the Egyptian Accounting Standards issued by Minister of Investment Decision No. (110) of 2015 mentioned above, in conjunction with the executive regulations accompanying this decision.

(Article Two)

This decision shall be published in the Egyptian Official Gazette and the Authority's website, and shall be enforced from the day following the date of publication.

---

Chairman of the Board of Directors Sherif Samy

46076

---

```markdown
# Guide for Applying Egyptian Accounting Standards
To the Insurance Sector in light of Egyptian Accounting Standards
Issued by Minister of Investment Decision No. 110 of 2015

![General Authority for Financial Supervision - Chairman's Office](https://example.com/seal.png)
46076
Version 1 July 2016
1

---

# Preamble

The Guide for Applying Egyptian Accounting Standards to the Insurance Sector in light of the Egyptian Accounting Standards issued by Minister of Investment Decision No. 110 of 2015 was prepared in accordance with the accounting and investment requirements contained in the Law on Supervision and Control of Insurance No. 10 of 1981 and its amendments and executive regulations, as well as the principles and rules issued by the General Authority for Financial Supervision specific to the insurance sector.

This guide was prepared due to the specialized nature of transactions conducted by insurance and reinsurance companies compared to those conducted by other entities, where accounting principles and legal requirements with accounting implications may differ in some cases from those applicable to other entities. Consequently, this guide was prepared to explain the method of applying the amended Egyptian Accounting Standards, and to ensure the continuity of legal rulings, reflecting the General Authority for Financial Supervision's desire to provide greater transparency and disclosure, and a better understanding for users of financial data and reports. Therefore, it is necessary to include in the financial statements of insurance and reinsurance companies additional statements and explanations useful to policyholders, as well as other information necessary for users of the financial statements. The requirements of the amended Egyptian Accounting Standards issued by Ministerial Decision No. (110) dated 2015/7/9 shall apply in matters not addressed in this guide.

The management of licensed insurance establishments in Egypt conducting insurance or reinsurance activities, regardless of their legal form or instrument of establishment, is responsible for preparing their financial statements in accordance with all provisions of the Egyptian Accounting Standards, taking into account the requirements of Law No. 10 of 1981 and its amendments and executive regulations, as well as the principles and rules issued by the General Authority for Financial Supervision specific to the insurance sector, including this Guide for Applying Egyptian Accounting Standards to the Insurance Sector in Egypt.

This guide is divided into four sections as follows:

- Section One: The General Framework for Presentation of Financial Statements and Recognition and Measurement Bases for Assets, Liabilities, and Off-Balance Sheet Items
- Section Two: Rules for Preparing and Presenting Financial Statements
- Section Three: Financial Statements
- Section Four: Disclosure Notes Models Published for Financial Statements

![General Authority for Financial Supervision - Chairman's Office](https://example.com/seal.png)
46076
2

---

# Section One
The General Framework for Presentation of Financial Statements and Recognition and Measurement Bases for Assets, Liabilities, and Off-Balance Sheet Items

## (A) The General Framework for Presentation of Financial Statements

### 1/A - All companies are committed, when preparing their annual, periodic, or any financial statements issued for public purposes, to the General Framework contained in the Egyptian Accounting Standards, ensuring comparability and faithful representation as follows:

#### 1/1/A - The information contained in the financial statements must be useful, relevant, comparable, and faithfully represent the information that should be presented regarding the company's financial position, financial performance, and cash flows at the end of the financial period covered by the financial statements.

#### 2/1/A - The information contained in the financial statements must be understandable and not overly complex, so as to benefit users who have a reasonable knowledge of business and economic activities and can examine and analyze the information quantitatively.

#### 3/1/A - Financial statements must deal with information of relative materiality. Information is considered materially significant if omitting or misstating it could influence the economic decisions that users routinely make based on the company's financial statements. Materiality should be based on the nature or size of items, or both.

#### 4/1/A - Financial statements must portray the financial effects of transactions and other events and group and classify them into clear categories according to their economic characteristics, in order to present information in a useful manner for users for economic decision-making purposes.

#### 5/1/A - An asset recognized in the statement of financial position must be a resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow to the entity.

#### 6/1/A - A liability recognized in the statement of financial position must be a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

#### 7/1/A - It is noted that the definitions of assets and liabilities above determine only their essential characteristics but do not determine the criteria for recognition and the right to present them in the financial position. Therefore, the aforementioned definitions include elements that are not recognized as assets or liabilities in the financial statements because they do not meet the recognition criteria contained in Egyptian Accounting Standard "4".

#### 8/1/A - When considering whether an element meets the definition of an asset, liability, or equity interest, the underlying substance and economic reality of the element must be taken into account, not just its legal form.

#### 9/1/A - It is necessary to distinguish between a current obligation and a future commitment that does not constitute a liability recognized in the statement of financial position. A decision by the entity's management to acquire assets in the future does not, by itself, lead to a current obligation.

![General Authority for Financial Supervision - Chairman's Office](https://example.com/seal.png)
46076
3

---

#### 10/1/A - Income must be represented by elements recognized in the income statement or statement of revenues and expenses, as appropriate, as increases in economic benefits during the accounting period in the form of inflows or increases in assets or decreases in liabilities that result in increases in equity, other than those related to contributions from owners.

#### 11/1/A - Expense elements recognized in the income statement or statement of revenues and expenses, as appropriate, must represent decreases in economic benefits during the accounting period in the form of outflows or decreases in assets or incurrence of liabilities that result in decreases in equity, other than those related to distributions to owners.

#### 12/1/A - It is noted that the definitions of income and expenses above do not determine the recognition criteria for these definitions, including in the income statement or statement of revenues and expenses, as appropriate.

#### 13/1/A - An item meeting the definition must be recognized if:

1. It is probable that future economic benefits associated with it will flow to or from the entity.
2. It has a cost or value that can be measured with reliability.

### 7/A - All companies are committed, when preparing their financial statements, to all provisions contained in the Law on Supervision and Control of Insurance No. 10 of 1981 and its amendments and executive regulations, as well as the principles and rules issued by the General Authority for Financial Supervision specific to the insurance sector regarding the preparation of financial statements.

## (B) Recognition and Measurement Bases for Assets and Liabilities

### 1/B - Application of Amendments Regarding Recognition, Measurement, and Presentation of Items in Financial Statements Contained in Amended Egyptian Accounting Standards or this Guide for the First Time in Financial Statements

#### 1/1/B - The amendments contained in the amended Egyptian Accounting Standards and their application guide must be applied to the financial statements of insurance companies – if any – and adjustments resulting from these amendments must be made to the figures at the beginning of the comparative year for the first financial year of application (in the statement of financial position and income statement). The balance of retained earnings (accumulated losses) at the beginning of the comparative year shall be affected by the sum of these adjustments, positively or negatively, after their tax effect, if any.

#### 2/1/B - The application with retrospective effect is excluded for entity contracts for hedging purposes – if any – to which the amendments regarding them are applied to the financial statements for the first financial period of application.

#### 3/1/B - The financial statements must disclose the fact and details of applying the amendments contained in the Egyptian Accounting Standards and their application guide, and the effect of adjustments in detail on the items of the comparative and current financial statements. The following disclosure can be used as a minimum amount of information.

![General Authority for Financial Supervision - Chairman's Office](https://example.com/seal.png)
46076
4

---

"The management applied the amended Egyptian Accounting Standards issued by Ministerial Decision No. 110 of 2015 and their application guide issued by Decision 2015/7/9, and comparative figures for the period/fiscal year ended in ———— have been adjusted according to the requirements of those standards for the required statements."

| Standard Number | Standard |
|-----------------|----------|
| Egyptian Accounting Standard 1 (Amended) - Presentation of Financial Statements | • A new statement titled "Statement of Comprehensive Income" has been added to the financial statements.<br>• The name "Balance Sheet" has been changed to "Statement of Financial Position".<br>• Detailed presentation of financial statements for policyholders' accounts in Takaful insurance companies.<br>• Detailed presentation of financial statements for shareholders' accounts in Takaful insurance companies.<br>• Change in recognition policy for production costs and basis for recording part of them based on future economic benefits.<br>• Separation of insurance vehicles and internal vehicles in unit-linked insurance products. |
| Egyptian Accounting Standard 17 (Amended) - Consolidated and Separate Financial Statements | • The term "Minority Interest" has been changed to "Non-Controlling Interests (Minority Interest)".<br>• The use of the equity method in separate financial statements has been abolished.<br>• Financial statements are consolidated based on the concept of control. |
| Egyptian Accounting Standard 18 (Amended) - Investments in Associates | • The cost method is followed for accounting for investments in associate companies in separate financial statements.<br>• Accounting for investment in an associate company using the equity method ceases from the date the company ceases to be an associate, and is measured at fair value on that date.<br>• The difference is included in the income statement. |
| Egyptian Accounting Standard 25 - Financial Instruments Disclosure and Presentation | • More detailed presentation of information and presentation method for financial instruments.<br>• Separation between equity instruments issued by the entity and financial liabilities in composite financial instruments – if any. |
| Egyptian Accounting Standard 26 - Financial Instruments Recognition and Measurement | • Establishment of accounting bases for financial risk hedging.<br>• Linking the presentation of financial instruments in the statement of financial position and income statement with disclosures related to financial risks.<br>• Disclosure of the policy for recognizing gains and losses resulting from the repurchase of issued call options.<br>• Recognition of financial transactions – if any. |
| Egyptian Accounting Standard 34 - Investment Property | • The option for fair value in investment property has been abolished. |
| Egyptian Accounting Standard 38 - Employee Benefits | • Actuarial gains and losses arising from employee benefit obligations are recognized in full within other comprehensive income items and accumulated in equity. |
| Egyptian Accounting Standard 40 - Financial Instruments - Disclosures | • Disclosure of information related to the management of financial risks of financial instruments. |

![General Authority for Financial Supervision - Chairman's Office](https://example.com/seal.png)
46076
5

---

| Egyptian Accounting Standard 41 - Operating Segments | • Disclosure of operating segments and their results.<br>• Disclosure of the bases for determining the operating segments to be disclosed according to the decision-makers' criteria in the entity. |
| Egyptian Accounting Standard 47 - Consolidated Financial Statements | • The term "Minority Interest" has been changed to "Non-Controlling Interests (Minority Interest)".<br>• Financial statements are consolidated based on the concept of control.<br>• The proportional consolidation method has been abolished and the equity method is used instead.<br>• Non-controlling interests are charged with their share of losses even if it results in a negative balance.<br>• Remaining interests in a holding company in subsidiaries are remeasured at fair value upon loss of control, and the difference is recognized in the income statement.<br>• Changes in the equity interest of a company in a subsidiary that do not result in loss of control are accounted for as equity transactions. |
| Egyptian Accounting Standard 45 - Fair Value Measurement | • The concept of fair value has been changed to include the amount that could be received or paid for an asset or liability.<br>• Disclosure of the different levels of fair value measurement. |

### 2/B - Change in Accounting Policies
The effect of changes resulting from changes in accounting policies is recognized retrospectively by adjusting the retained earnings (accumulated losses) item after settling the related tax effect, and then comparative figures are adjusted. In all cases, the financial statements must disclose changes in accounting policies that occurred during the period, the financial effect on the financial statements, and the reasons for such changes. This is subject to the transitional provisions contained in Egyptian Accounting Standard No. 46.

### 3/B - Change in Accounting Estimates
The effect of changes in accounting estimates is recognized by including it in the income statement or statement of revenues and expenses, as appropriate, if the change affects the period of change or future periods if it affects both.

### 4/B - Errors
Errors in the recognition, presentation, or disclosure of items in financial statements arise from previous financial periods. Errors discovered during the current period and prior periods are corrected retrospectively at the beginning of the period after settling the related tax effect, and then comparative figures are adjusted. The previous financial statements were issued correctly. In all cases, the nature of the error and its value must be disclosed in the financial statements.

![General Authority for Financial Supervision - Chairman's Office](https://example.com/seal.png)
46076
6

---

### 5/B - Recording Transactions in Foreign Currencies
- The company must use the functional currency for bookkeeping and presentation of financial statements. The functional currency is determined based on the currency of the primary economic environment in which the company conducts its activities, considered the currency of the transactions. The functional currency should not be changed unless there is a change in these fundamental transactions, events, and circumstances.

### 6/B - Transactions in foreign currencies are recorded in the books based on the prevailing rate on the date of transaction execution.
Balances of assets and liabilities of a monetary nature in foreign currencies are revalued at the statement of financial position date based on the prevailing rates for foreign currencies on that date. Differences resulting from transactions during the year and from revaluation are recognized in the income statement or statement of revenues and expenses / other operating expenses, as appropriate, except for those deferred within comprehensive income items as a qualifying hedge for a net investment.

### 7/B - Items of a non-monetary nature measured at historical cost in a foreign currency are translated using the exchange rate prevailing on the date of the transaction.

### 8/B - Using the exchange rates prevailing on the date when fair value is determined. Differences resulting from translation are recognized within fair value. In this context, changes in the fair value of monetary financial instruments (debt instruments) in foreign currencies and classified as held-for-sale investments are analyzed between differences arising from changes in amortized cost. Differences in valuation related to changes in amortized cost are recognized in the income statement, and other changes in book value are recognized within comprehensive income items "Fair Value Reserve".

### 9/B - A portion of gains and losses resulting from valuation differences in fair value arising from non-monetary items, such as equity instruments held at fair value through profit or loss, is recognized. Valuation differences resulting from equity instruments classified as held-for-sale investments are recognized in the fair value reserve within comprehensive income items.

### 10/B - The results of operations and financial positions of the entire activity in consolidated financial statements are translated by following the following procedures:

![General Authority for Financial Supervision - Chairman's Office](https://example.com/seal.png)
46076
7

---