In relation to insurance accounting (and aggregation of insurance contracts), it involves the determination of the unit of account to be used under accounting for insurance contracts, including the allocation of contractual service margin (CSM) to insurance income and the level (of granularity) at which an insurer determines onerous contracts. Accordingly, these requirements affect how the performance of the insurer will be reported in its financial statements.

Units of account are used for the recognition and measurement of different elements of financial statements. For insurance, and based on the purpose of evaluation, the unit of account may range from an individual contract level for certain elements up to aggregation of contracts at entity level for others. For practical reasons, determination of such levels is governed by an entity’s circumstances and requirements, including the jurisdiction in which it operates.