What is the second step in determining liabilities under IFRS?

• A. Calculation of unbiased probability weighted expected cash flows
• B. Application of discounting: risk free rate with adjustments to reflect currency, liquidity, cash flow timing
• C. Application of margins
• D. Recognition of revenue

Answer: (B)

In IFRS 17 measurement, you begin by estimating the fulfillment cash flows as the unbiased, probability-weighted expectation of all future payments and receipts. The second step is to discount those cash flows to their present value using a discount rate that reflects the time value of money and the characteristics of the cash flows (such as currency, liquidity, and timing). This discounting brings future amounts into today’s terms, before adding the risk adjustment for non-financial risk and any contractual service margin. Revenue recognition and margins aren’t the second step in this sequence.