17 Mar 2014
Many international insurers were still hoping for convergence to minimise differences in reporting between the US and the rest of the world. But the Financial Accounting Standards Board (FASB) recently decided to only make targeted changes to US Generally Accepted Accounting Principles, mainly for long duration contracts in the life insurance industry. This means that convergence is not on the cards, at least in the near term.
Convergence has many benefits, but it also has the risk of delays as more parties are involved in decision making. At the same time, there continues to be an urgent need for a comprehensive insurance contract standard under International Financial Reporting Standards. On the other hand, many users and preparers in the US did not see a need for change in accounting for insurance contracts and as such, the FASB moved in a different direction.
In addition, the IASB decided that the financial instruments standard, for which convergence already seemed far away, should be effective from 2018. Users, preparers and auditors were concerned that insurers would have to go through a significant transition twice in a short timeframe.
Moving the effective date makes a combined transition to the insurance contracts and financial instruments standards more likely. The International Accounting Standards Board will continue their discussions on the insurance contracts project in March and now it has a significant stimulus to get the insurance contracts project done. Peter Hogarth, a technical accounting partner at PwC said of the developments; “Who knows – 21 years after the project started, we may have an insurance contracts standard effective before the end of the decade!”