The Financial Accounting Standards Board (FASB) is asking insurance accounting experts whether it should try to converge with proposed international standards or just update the current rules.
FASB, Norwalk, Conn., is asking that question in a discussion paper concerning on efforts to improve financial reporting for insurance contracts.
The International Financial Reporting Standards (IFRS) now in effect do not give insurers much guidance about how to account for insurance contracts, and users of the financial statements of international insurers are complaining that the statements are often difficult to understand, FASB officials say in an introduction to the discussion paper.
The International Accounting Standards Board (IASB), London, the body in charge of the IFRS, recently released an exposure draft of proposed insurance reporting standards.
FASB has been holding joint meetings with IASB in the hope of updating U.S. insurance accounting rules to make them similar to, or even identical to the IASB rules.
Many provisions in the IASB exposure draft, including, for example, the definitions of “insurance contract” and “insurance risk,” are identical to new provisions that FASB is drafting, but some provisions are different. One is a provision dealing with initial measurement of policy acquisition costs.
Current U.S. Generally Accepted Accounting Principles (GAAP) let an insurer
capitalize acquisition costs as an asset and amortize the cost over the life of the contract. IASB wants to have insurers subtract incremental acquisition costs from the measurement of the preclaims obligation. The acquisition costs would be “recognized in earnings over the coverage period in a systematic way,” FASB officials say.