FASB proposes to delay insurance standard due to coronavirus, but ease early adoption
The Financial Accounting Standards Board released a proposed accounting standards update to help insurance companies adversely affected by the COVID-19 pandemic by giving them an extra year to implement the long-duration insurance accounting standard.
But for insurers that don’t need the extra time, the proposal aims to make it easier and more cost-effective to stay with their current timelines and adopt the new standard earlier.
“Some insurance companies expressed concerns about their ability to perform a quality implementation of LDTI while managing the effects of the COVID-19 pandemic,” said FASB vice chairman James Kroeker (pictured) in a statement Thursday. “The proposed ASU would provide these companies an additional year, while also reducing complexity for companies that remain on track to make a successful transition to the standard by their current effective date.”
To enable early application and encourage faster delivery of improved information to investors, the proposed standards update would permit insurance companies to restate only one previous period, as opposed to two periods, if they opt to early adopt the insurance standard.
The proposed update would allow insurance companies to postpone implementation by one year as follows:
For SEC filers, excluding smaller reporting companies as defined by the SEC, the new insurance standard would be effective for fiscal years starting after Dec. 15, 2022, and interim periods within those fiscal years. For all other entities, the new standard would be effective for fiscal years starting after Dec. 15, 2024, and interim periods within fiscal years beginning after Dec. 15, 2025.
FASB has been delaying the effective dates of a number of its other accounting standards in response to the pandemic in recent months, including the credit losses, leases and hedging standards, while also giving private companies, nonprofits and smaller public reporting companies more time to implement them than large public companies. The board voted last month during an online meeting to delay the insurance standard in response to the pandemic (see story).
The long-duration insurance standard covers contracts such as whole-life, guaranteed renewable term life, endowment, annuity and title insurance contracts. The insurance accounting standard started out as one of the major convergence projects that FASB embarked on with the International Accounting Standards Board back in the early 2000s after their Norwalk Agreement of 2002. FASB’s insurance accounting standards under U.S. GAAP were generally perceived as more advanced than the IASB’s International Financial Reporting Standards, and more changes were expected in IFRS in insurance accounting. However, FASB decided to go its own way on insurance standards in 2014 and make changes mostly with its standards for long-duration insurance contracts rather than changing its standards for short-term arrangements.
FASB is asking its constituents to review and comment on the proposed proposal by Aug. 24. The proposed accounting standards update, including information on how to submit comments, is available here.