The Financial Accounting Standards Board is postponing the effective date of its long-duration insurance accounting standard for a year and making it easier to adopt it early.
Last month, the board members voted to defer the standard in response to the coronavirus pandemic (see story). At the time, a spokesperson said the board would be issuing an accounting standards update later in the year, and the ASU came out on Thursday. For SEC filers, excluding smaller reporting companies as defined by the commission, the standard takes effect for fiscal years beginning after Dec. 15, 2022, and interim periods within those fiscal years. For all other entities, the standard takes effect for fiscal years beginning after Dec. 15, 2024, and interim periods within fiscal years beginning after Dec. 15, 2025.
FASB has been delaying a number of its standards this year in response to the COVID-19 pandemic, including leases and credit losses, as well as revenue recognition for franchise businesses. Back in July, it proposed delaying the insurance standard after voting in June to issue the proposal (see story).
The long-duration insurance standard was originally part of a major project with the International Accounting Standards Board to converge insurance accounting between U.S. GAAP and International Financial Reporting Standards. IFRS typically did not have as detailed guidance on insurance accounting as U.S. GAAP. However, the two boards eventually went their separate ways, with FASB choosing to make targeted improvements in long-duration insurance contracts, such as for life insurance and annuities.
For companies that have chosen to adopt the new standard before the delayed effective date, FASB is offering them some extra flexibility to facilitate early application of the standard and encourage accelerated delivery of better information to their investors. Insurance companies will be allowed to restate only one previous period, rather than two, if they choose to early adopt the long-duration targeted improvements, or LDTI.
“The new ASU has two purposes: first, to ensure a high-quality implementation of LDTI guidance by permitting insurance companies impacted by the pandemic to take an additional year to apply the standard,” said FASB vice chairman James Kroeker in a statement. “And second, to reduce cost and complexity for insurance companies that remain on track to make a successful transition to the standard by the current effective date.”
The update, along with other documents that FASB has issued to support stakeholders during the pandemic, is available through FASB’s COVID-19 web portal.
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