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FASB, IASB Still Dickering Over Insurance Standards

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A senior credit officer at Moody’s Investors Service has produced a list of some of the differences that remain between U.S. and international negotiators working on an insurance accounting standards project.

Wallace Enman prepared the list for a credit outlook newsletter released by Moody’s, New York, earlier this week.

The Financial Accounting Standards Board (FASB), the group in charge of the U.S. Generally Accepted Accounting Principles (GAAP), and the International Accounting Standards Board (IASB), London, the group in charge of the International Financial Reporting Standards (IFRS), have been Earthworking on the insurance standards project for years.

FASB wants to update an existing U.S. standard; IASB is creating a new standard.

The groups are hoping that the U.S. GAAP standard will end up being similar to, or even identical to, the IFRS standard.

The groups were trying to complete work on the insurance standards project by June but now IASB says it may not have its work done until mid-2012.

“The project is highly controversial, and the decision to delay was likely influenced by vocal opposition from investors and the industry, as well as by the difficulty in reconciling the two boards’ views,” Enman writes in a commentary on the decision to push back the completion deadline.

Even if IASB completes a standard by mid-2012, the earliest IFRS implementation date would be in 2015 or later, Enman says.

FASB probably will not have any final standard ready until the latter half of 2012, at the earliest, he says.

Any standards change is unlikely to affect Moody’s ratings unless “the new accounting model is deemed so unhelpful to investors that it reduces the industry’s access to capital markets,” Enman says.

Enman says some of the matters still open for discussion include:

  • An IASB deferred acquisition cost (DAC) proposal that is more conservative than DAC rules FASB recently completed.
  • Proposals to require a company to use a discount rate that reflects the characteristics of the liabilities assumed rather than the characteristics of the assets supporting the liabilities.
  • An IASB push to have companies mark liabilities to current value and reflect that adjustment in net income each period. FASB is considering letting companies report changes that result from interest-rate fluctuations in the less closely watched “other comprehensive income” rather than in net income.
  • Proposals for presenting income statements in terms of “margins,” or changes in income components, rather than the underlying values that are changing. Critics complain that the margin-based approach would shove premium revenue, claims expenses and other figures that have been included in U.S. GAAP income statements for decades out into the supplemental information.

- Allison Bell

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