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.

FASB “has not decided whether incremental acquisition costs would reduce the preclaims liability,” FASB says.

In others cases, FASB members already have decided to disagree with the IASB approach.

“Regardless of [FASB] members’ individual views and uniform commitment to convergence, the [FASB] board determined that additional information was needed about whether the possible new accounting guidance in this discussion paper would represent a sufficient improvement to U.S. GAAP to justify issuing new guidance,” officials say.

FASB also wants to hear thoughts on whether stakeholders could accept the idea of FASB simply updating existing GAAP standards when current U.S. GAAP standards and the proposed IASB standards are similar, officials say.

In addition to asking for comments on the discussion paper, FASB will be joining with IASB in December to hold a series of public roundtable discussions on insurance accounting standards.

The Group of North American Insurance Enterprises (GNAIE), New York, a group that represents large U.S. insurers in international proceedings, has issued a statement welcoming the FASB insurance contracts discussion paper and suggesting that IASB ought to have issued a discussion paper, rather than jumping straight to issuing an exposure draft.

Traditionally, an exposure draft is close to being a final standard, according to GNAIE Chairman Jerry de St. Paer.

IASB would have been better off making its exposure draft a discussion paper, because FASB has divided views on some provisions and has not yet talked enough about other provisions, de St. Paer says in the statement.

“We think the comments that will be made by users, preparers, accounting firms and others and the December roundtables will show the two boards that they are very close to a high quality set of standards for life insurance and property-casualty accounting,” de St. Paer says. “The key question asked by the FASB is whether or not this will result in improved standards for U.S. filers compared to the current U.S. GAAP. The biggest mistake would be to rush this deliberative process to a hasty conclusion.”