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June 22, 2010 at 08:00 PM
The International Accounting Standards Board (IASB) and its U.S. counterpart, the Financial Accounting Standards Board (FASB), are meeting today to consider changing insurance contract reporting rules.
IASB, London, helps set accounting rules for the rules, and FASB, Norwalk, Conn., sets accounting rules for the United States.
IASB today held a board meeting with FASB to consider proposals for insurance contract reporting.
The boards considered papers on topics such as the presentation of comprehensive income and acquisition costs.
The boards also considered topics such as the cash flows that arise as an insurer fulfills an existing insurance contract and “unbundling,” or separating out reporting on distinct components of a product, such as insurance risk, financial risk, instances when there are “separate, observable markets” for components of a product, and instances when there are clear variations in cash flow.
FASB considered an unbundling proposal under the name “bifurcation” in 2006.
In May, IASB and FASB asked staff members to explain more clearly how an entity could decide when “significant interdependence” of product components might make reporting on the components separately impractical.
“Unsurprisingly, the issue about when to unbundle an insurance contract is a difficult and controversial topic,” staff members at the boards write in a paper prepared for the board members. “By its nature, separating a single contract into multiple components can increase complexity (and thus make it more difficult for users to understand financial reporting of these contracts) and increase costs (the preparer is forced in some instances to separate intertwined cash flows, measure some cash flows using a different measurement to comply with the accounting, and track those separate cash flows throughout the life of the contract).”
In spite of the cost, unbundling could be beneficial in instances in which it produces useful information at a reasonable cost, the staffers say.
