A trade group representing insurance and reinsurance companies has taken exception to a proposed standard on fair value accounting and said it will make financial statements harder to understand.

A recent proposal from the Financial Accounting Standards Board is intended to improve existing disclosures concerning fair value accounting measurements. However, in a letter to FASB, the Group of North American Insurance Enterprises asserted that, without substantial revision, the information may not be comparable among companies and would be difficult for users of financial statements to interpret.

The GNAIE acknowledged it understood FASB’s objective of enhancing the disclosures where fair values are measured using non-market observable inputs and better aligning disclosures about fair value measurements with those required under International Financial Reporting Standards 7. However, in an October 13 comment letter, the GNAIE said that in aligning its Proposed Accounting Standards Update on improving disclosures of fair value measurements with the international standard, FASB should first evaluate global implementation practices to determine whether global conformity exits.

Moreover, the GNAIE said, it believes enhanced disclosures for Level 3 measurements should be qualitative, focusing on the potential variability of reasonably possible significant inputs, the causes of that variance and how the reporting entity arrived at the reported fair value.

Providing that type of enhanced disclosures where the majority of a fair value measurement is affected by inputs that are not market observable would align the required disclosures provided by IFRS reporters and limit incremental disclosures to those that are most relevant to financial statement users, according to GNAIE.

“If the scope of the proposed ASU is not revised, we are concerned that the information may not be comparable among companies and will provide more difficulty for financial statement users to interpret due to the quantity of instruments subjected to the requirements and the wide variations in grouping, estimating and presenting Level 3 sensitivities,” said Allstate vice president Kevin Spataro, chair of GNAIE’S Accounting Convergence Committee, in a letter to FASB Chairman Robert Herz.

The GNAIE added that FASB’s approach would not achieve the objective of improving disclosures for Level 3 fair value measurements, and the proposed effective dates do not provide enough time to develop and execute necessary implementation plans.

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