MHMMessenger

March 2014
TM

M ay e r H o f f m a n M c C a n n P. C . – A n I n d e p e n d e n t C PA Fi r m

A publicat...
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Entities that are within the scope of ASC 944 include
the following:
a.	 Life and health insurance entities, ...
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Insurance Contracts Joint Project Update

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During 2008 the Financial Accounting Standards Board (FASB) decided to work jointly with the International Accounting Standards Board (IASB) to develop a "more globally comparable standard" on the measurement and disclosures for insurance contracts across all industries.
The FASB Board recently arrived at a tentative decision about the scope of the project that will have an impact on companies that are not insurance entities, but that issue contracts such as certain guarantees, indemnifications, and extended warranty or product maintenance contracts.

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Insurance Contracts Joint Project Update

  1. 1. MHMMessenger March 2014 TM M ay e r H o f f m a n M c C a n n P. C . – A n I n d e p e n d e n t C PA Fi r m A publication of the Professional Standards Group Insurance Contracts Joint Project Update During 2008 the Financial Accounting Standards Board (FASB) decided to work jointly with the International Accounting Standards Board (IASB) to develop a “more globally comparable standard” on the measurement and disclosures for insurance contracts across all industries. The FASB Board recently arrived at a tentative decision about the scope of the project that will have an impact on companies that are not insurance entities, but that issue contracts such as certain guarantees, indemnifications, and extended warranty or product maintenance contracts. Background In June 2013 the FASB issued proposed Accounting Standards Update 2013-290 Insurance Contracts (Topic 834). The exposure draft proposed accounting for insurance contracts using the building block approach (BBA) for life, annuity and long-term health contracts, or the premium allocation approach for property, liability and short-term health contracts. In addition to applying one of these two accounting models to an insurance contract, a reporting entity would disclose the amounts, judgments and risks used in, and resulting from, the evaluation of its our roots run deep TM insurance contracts. Included in the disclosures would be reconciliations of opening and closing balances for contract related amounts such as the contract liabilities and assets, claims, margins and reinsurance. The proposed disclosures would be required to be disaggregated into appropriate categories, which may include product lines, geographical regions and reporting segments. The exposure draft would have expanded the application of the accounting for insurance contracts to all industries. Whereas, existing U.S. Generally Accepted Accounting Principles (U.S. GAAP) for insurance contracts is restricted in scope to insurance entities. The FASB received comment letters from many preparers of financial statements for noninsurance entities opposing the expansion of scope of the guidance on accounting for insurance contracts. Those preparers raised concerns about the application of the insurance contract guidance to entities that are not regulated insurance entities, because it would increase complexity and not improve consistency between those entities. Recent Decision Reached The FASB Board recently reached a tentative decision to narrow the scope of this project to focus on those entities within the scope of accounting standards codification topic 944 Financial Services – Insurance (ASC 944). However, the FASB did leave open the possibility of expanding the final project to other entities or contracts held by other entities. © 2 0 1 4 M ay e r H o f f m a n M c C a n n P. C . 877-887-1090 • www.mhmcpa.com • All rights reserved.
  2. 2. MHMMessenger Entities that are within the scope of ASC 944 include the following: a. Life and health insurance entities, including both: 1. Stock life insurance entities 2. Mutual life insurance entities. b. Property and liability (casualty) insurance entities, including: 1. Stock entities 2. Mutual entities c. Title insurance entities d. Assessment entities e. Fraternal benefit societies f. Mortgage guaranty insurance entities g. Financial guaranty insurance entities h. Pools other than public-entity risk pools i. Syndicates j. Captive insurance entities k. Reinsurance entities l. Reciprocal exchange or interinsurance exchange. The FASB Board is still evaluating options for further discussions, however, as a result of the decision to include only insurance entities, it is expected that the original intended goal of convergence will not be achieved as the IASB and FASB standards on insurance contracts will likely have significant differences when the final versions are issued. What to Watch for The FASB Board expects to continue redeliberations of this exposure draft during 2014. In their recent deliberations the FASB Board indicated they may decide to add additional contracts to the scope of the project on a case by case basis. Additional topics the FASB is expected to discuss include the inputs used in computations related to the insurance contracts, the accounting for a portfolio of contracts, acquisition costs, and contract modifications among other issues proposed in the exposure draft. For More Information MHM’s Professional Standards Group will continue to monitor progress on the insurance contract project and changes to its scope. If you have any specific questions, comments or concerns, please share them with Ernie Baugh or James Comito of MHM’s Professional Standards Group or your MHM service professional. You can reach Ernie at ebaugh@mhm-pc.com or 423.870.0511 and James at jcomito@cbiz.com or 858.795.2029. The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please contact your MHM auditor to further discuss the impact on your audit or audit report. 2 © 2 0 1 4 M ay e r H o f f m a n M c C a n n P. C . 877-887-1090 • www.mhmcpa.com • All rights reserved.

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