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31 March 2020

What’s the issue?

Some companies may have insurance cover for losses triggered by the COVID-19 coronavirus outbreak – e.g. for business interruption or third party claims, including penalties for non-performance, late delivery or cancellations.

For many companies, accounting for insurance proceeds will be a new area. In many cases, the key question is when is it appropriate to recognise the expected proceeds from an insurance claim? To determine this, companies need to consider the nature and timing of the insured event.

The accounting for insurance proceeds related to losses triggered by the COVID-19 outbreak depends on the nature and timing of the insured event.

Getting into more detail

Under IFRS® Standards, the accounting for insurance proceeds depends on whether a company recognises a provision for the insured event.


As a result of the COVID-19 outbreak, some companies may struggle to fulfil their legal or contractual obligations and may incur penalties that give rise to a provision. Insurance proceeds may reimburse some or all of the expenditure necessary to settle the provision.

Insurance proceeds to settle a provision are accounted for as reimbursements under IAS 37 Provisions, Contingent Liabilities and Contingent Assets and are recognised as a separate asset (with related income) when recovery is virtually certain. The amount recognised as a reimbursement right is limited to the amount of the related provision. [IAS 37.53]

Compensation for business interruption 

Insurance proceeds may compensate a company for business interruption – e.g. for lost profits caused by COVID-19. The ability to claim these proceeds will depend on the specific terms of the insurance contract, actions taken by the government and interpretation of the applicable law. For example, if all restaurants are ordered to close by the government, then they may be able to claim under their insurance contracts.

Lost profits, by themselves, do not give rise to a provision. Therefore, compensation for business interruption is not a reimbursement right under IAS 37 and should be accounted for by analogy to guidance on compensation for impairment under IAS 16 Property, Plant and Equipment. Following that guidance, a company recognises the compensation for business interruption as a receivable when it has an unconditional right to receive the compensation. 

A company would have an unconditional contractual right to receive compensation if:

  • it has an insurance contract under which it can make a claim for compensation; and
  • the loss event that creates a right for the company to assert a claim at the reporting date has occurred and the claim is not disputed by the insurer. [Insights]

The compensation receivable would be measured based on the amount and timing of the expected cash flows discounted at the rate that reflects the credit risk of the insurer. [IAS 16.65–66, Insights and 198.10]

Actions for management to take now

  • Review insurance contract terms and, involving legal advisers where necessary, determine eligibility to claim under insurance contracts for losses caused by the COVID-19 outbreak.
  • Assess whether any business interruption triggers impairment of assets and perform the impairment test if necessary.
  • Recognise a reimbursement for a provision as a separate asset only when it is virtually certain that the company will receive it. 
  • Recognise a receivable only when there is an unconditional right to receive the compensation for business interruption.

References to ‘Insights’ mean our publication Insights into IFRS

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