IFRS 17 — Premium Allocation Approach (PAA) Revenue
Recognizing insurance revenue under the simplified PAA for short-duration contracts.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Liability for Remaining Coverage (LRC) | Liability (-) | 100.00 | - |
| Insurance Revenue (PAA) | Revenue (+) | - | 100.00 |
💡 Accountant's Note
The PAA is a simplified IFRS 17 approach for contracts of 12 months or less (most general insurance). Revenue is recognized in line with the passing of coverage period — essentially a straight-line release of the LRC.
Practitioner & Systems Framework
💻 ERP Architecture
Under the PAA, the Liability for Remaining Coverage (LRC) is calculated very similarly to the traditional UPR — it is the unearned portion of the premium allocated to the remaining coverage period. Most general insurers apply PAA, making the transition from IFRS 4 less complex for short-duration lines. The LRC is calculated and posted by the policy admin or IFRS 17 sub-ledger system. The key difference from UPR is that PAA also requires an 'insurance acquisition cashflow' adjustment (equivalent to DAC) and a loss component for onerous groups.
⚠️ Audit Flags
Auditors confirm that the insurer has assessed PAA eligibility for each product group — PAA is only permitted if the coverage period is 12 months or less, or if the PAA result would not materially differ from the GMM. Where PAA is used for contracts exceeding 12 months, the eligibility assessment must be documented and annually re-evaluated. Auditors also check that the LRC is tested for onerous contracts at each reporting date (a liability adequacy test equivalent).
📄 Required Documentation
PAA eligibility assessment by product class, LRC roll-forward schedule, onerous contract test results, comparison of PAA to GMM for any contracts exceeding 12 months, and accounting policy note confirming PAA application.
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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.