The Financial Accounting Standards Board is asking for input on how to improve the accounting for insurance contracts in financial reports through a new discussion paper.
The discussion paper is part of FASBs joint project with the International Accounting Standards Board. In June, the IASB issued an exposure draft of a proposed international financial reporting standard that would apply to all insurance contracts written by both insurance companies and noninsurance companies.
The FASB discussion paper asks stakeholders to provide input about the following:
Whether the IASBs proposal would be a sufficient improvement to U.S. GAAP to justify the cost of change;
Whether the project goals of improvement, convergence, and simplification would be more effectively achieved by making targeted improvements to existing U.S. GAAP (rather than issuing comprehensive new guidance); and
Certain critical accounting issues for which the preliminary views of the FASB differ from the IASBs ED.
The FASB believes it is important to gather as much information as possible at this stage of the project to help it decide the best way to improve the financial reporting for insurance contracts, said FASB member Marc Siegel in a statement. This information will be helpful to both the FASB and the IASB in our deliberations.
In addition to soliciting written comments, FASB and the IASB plan to host a series of public roundtable meetings in December 2010 to hear stakeholders views.
The discussion paper, and information about the roundtables, is available at www.fasb.org.
At least one insurance group filed an early comment letter last month criticizing some of the IASB proposals. The Group of North American Insurance Enterprises said that the proposed exposure draft failed in its original intent of advocating a simplified alternative measurement paradigm for certain short-term insurance contracts whose underlying attributes are best accounted for using a short-term revenue and expense model similar to that currently in use around the world.
Instead, according to the GNAIE, the exposure draft proposes an excessively complex model that ultimately results in a full, but indirect, application of the IASB building blocks model to both the pre-claims liability and post-claim reserves associated with short-term property/casualty insurance contracts.
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