The Financial Accounting Standards Board has officially released a proposal to update accounting standards Wednesday to postpone the effective date of its long-term insurance standard in order to give businesses more time to implement it.
The delay would extend the effective date for public company filers with the SEC other than reporting small companies from January 2021 to January 2022 (public float or public float of less than $ 700 million) and all other public business entities would have until January 2024 to implement the standard, instead of the original effective date of January 2021. For private companies and nonprofits, the effective date force would change from January 2022 to January 2024.
FASB board members voted at a meeting earlier this month to propose extending effective dates after hearing complaints that the insurance standard and other standards regarding leases, credit losses and coverage proved difficult to implement, especially for private companies, small public companies and non-profit organizations (see FASB for suggested delays in major standards) .
Traditionally, the FASB gives private companies and nonprofits an additional year after the effective date for SOEs to implement key standards. Last week, the FASB released a formal proposal to postpone effective dates for leases, credit losses (also known as CECL) and hedging standards (see FASB issues proposal to delay new standards) . On Wednesday, it issued the one for long-term insurance contracts. It would apply to insurance companies that issue long-term contracts, such as life insurance and annuities,
The insurance accounting standard was one of the major convergence projects the FASB was working on with the International Accounting Standards Board to harmonize US GAAP with International Financial Reporting Standards. US GAAP has long provided detailed rules for insurance accounting, while IFRS principles for insurance were seen as relatively underdeveloped. However, the two boards eventually decided to go their separate ways and the FASB decided to make substantial changes only to the standards for long-term insurance contracts. Last August, the FASB published Update to accounting standards n ° 2018-12, Financial services – Insurance (subject 944): Targeted improvements in the recognition of long-term contracts, with specific modifications aimed at improving and simplifying financial reporting requirements.
Since then, the FASB has received requests to delay the effective date of the standard by one year. In response, FASB members and staff reached out to various insurance companies that issue or reinsure long-term contracts to better understand the challenges they face in implementing the new standard and the progress they are making. they accomplish.
Last week, as part of accounting standards updates proposing a delay for leases, credit losses and hedging standards, the FASB outlined a new philosophy for determining how the effective dates of major standards should be scaled between large public companies and all other entities. Under this philosophy, a major standard would come into effect first for large public companies, while effective dates for all other public and private companies and organizations would be staggered at least two years later. In general, the FASB expects early application to always be allowed for all entities.
“Based on what we observed while monitoring the implementation of the long-term insurance standard – and in line with our new philosophy of staggering the effective dates between large listed companies in stock exchange and all other companies and organizations – the FASB has proposed to give all insurance companies at least one additional year to apply the standard, ”said FASB President Russell Golden. “We believe this will translate into better implementation for everyone. “
The FASB invites comments on the proposal before September 20, 2019.