The Financial Accounting Standards Board postpones the effective date of its long-term insurance accounting standard by one year and facilitates its early adoption.
Last month, council members voted to postpone the standard in response to the coronavirus pandemic (see the story). At the time, a spokesperson said the board would issue an update to accounting standards later in the year, and the USS came out on Thursday. For SEC filers, with the exception of smaller reporting companies as defined by the commission, the standard takes effect for fiscal years beginning after December 15, 2022, and periods in between within such fiscal years. For all other entities, the standard applies to fiscal years beginning after December 15, 2024 and to interim periods of fiscal years beginning after December 15, 2025.
The FASB has delayed 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. In July, he proposed to delay the insurance standard after voting in June to publish the proposal (see the story).
The long-term insurance standard was originally part of a major project with the International Accounting Standards Board to converge insurance accounting between US GAAP and International Financial Reporting Standards. IFRS generally did not have as detailed guidance on insurance accounting as US GAAP. However, the two boards eventually went their separate ways as the FASB chose to make targeted improvements to long-term insurance contracts, such as life insurance and annuities.
For companies that have chosen to adopt the new standard before the delayed effective date, the FASB gives them additional flexibility to facilitate early application of the standard and encourage the expedited delivery of better information to their investors. Insurance companies will only be allowed to restate a single previous period, rather than two, if they choose to early adopt Targeted Long-Term Improvements, or LDTI.
“The new ASU has two objectives: first, to ensure high quality implementation of the LDTI guidelines by allowing insurance companies affected by the pandemic to take an extra year to apply the standard,” said the vice president of the FASB, James Kroeker, in a statement. “And second, reduce costs and complexity for insurance companies who remain on track to successfully transition to the standard by the current effective date. “