Deferred Acquisition Cost (DAC) — Initial Recognition
Deferring upfront agent commissions paid to acquire new insurance policies.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Deferred Acquisition Costs (DAC Asset) | Asset (+) | 18,000.00 | - |
| Agent Commission Expense (Deferred) | Expense (-) | - | 18,000.00 |
💡 Accountant's Note
Under IFRS 17 and IFRS 4, incremental costs of acquiring contracts (primarily agent commissions) are deferred and amortized over the contract period. This matches the acquisition cost to the revenue it generates.
Practitioner & Systems Framework
💻 ERP Architecture
Under IFRS 17, DAC is replaced by the concept of 'insurance acquisition cash flows' which are included in the measurement of the insurance contract liability (reducing the CSM or, for PAA, as a separate asset). Only incremental costs — those that would not be incurred if the policy were not written — qualify for deferral. In practice, agent commissions are the main qualifying cost. The DAC asset is calculated in the policy admin system and amortised over the policy period. For IFRS 17 PAA contracts, the insurance acquisition cashflow asset is a separate line item on the balance sheet.
⚠️ Audit Flags
Auditors verify that only incremental acquisition costs are deferred — overhead costs allocated to acquisition (e.g., underwriting staff time) do not qualify for deferral under IFRS 17. The DAC asset must be tested for recoverability (part of the onerous contract test) — if the contract group becomes onerous, the DAC must be written off first before a loss component is recognised. Verify that DAC amortisation is proportionate to premium earning and that cancelled policies have their DAC written off immediately.
📄 Required Documentation
Commission schedule by product and agent tier, incremental cost analysis supporting DAC qualification, DAC roll-forward schedule (opening balance, new business, amortisation, write-offs for cancellations, closing balance), and recoverability test as part of the onerous contract assessment.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.