Moving into its 7th year, the Insurance Contracts Project saw significant progress last month, signaling to the industry that the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are serious about adhering to a timeline for change.
At its meeting on February 19th, the FASB made the following decisions on the future direction of its project:
- For short-term contracts, focus efforts on targeted improvements to disclosures, without changing the current recognition and measurement provisions under US GAAP.
- For long-term contracts, work on targeted improvements to current US GAAP and then evaluate how those improvements compare with the building-block approach as determined by the IASB. Improvements contemplated could include (i) eliminating multiple models; (ii) using current market rates; and (iii) updating assumptions.
- Limit the scope of the project to insurance entities for now, as described under current US GAAP, rather than expand to all entities that issue insurance contracts as proposed in the FASB’s June 2013 Exposure Draft, Insurance Contracts (Topic 834).
On February 24th, the IASB posted a summary of feedback from investors and analysts on the IASB’s 2013 Exposure Draft, Insurance Contracts. The IASB will consider this feedback over the next several months with an expected release date of the Final Standard in 2015, which should be effective sometime in 2018. This timeline correlates with the tentative effective date of January 1, 2018 recently set by the IASB for the proposed financial instruments standards under IFRS 9. This decision may make it easier for insurers to adopt both standards (IFRS 4 and IFRS 9) at the same time.