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.

1. MHMMessenger
March 2014
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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
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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.
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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.
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