The FASB affirmed its decision to defer the effective date of ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts. The Update, when issued, will defer the mandatory effective date by one year for SEC filers other than smaller reporting companies (SRCs) and two or three years for all other entities. Calendar year-end SEC filers other than SRCs will be required to apply ASU 2018-12 on January 1, 2022. Other calendar year-end entities will be required to apply the ASU on January 1, 2024. For those public business entities that will now be considered in the “other entity” category, this effectively results in a three year deferral. Early application is still permitted.
SRCs, as defined by the SEC, include registrants with a public float of less than $250 million, as well as registrants with annual revenues of less than $100 million for the previous year and either no public float or a public float of less than $700 million. All other entities include all other public business entities (as defined in the FASB Codification master glossary), including SRCs, as well as private companies.
The 23 comment letters received on the FASB’s August 21 exposure draft expressed broad support for deferral and were consistent with feedback received during the Board’s earlier outreach and operational readiness visits. Commenters noted that the additional time would allow preparers to more effectively implement the standard while increasing their ability to leverage their finance modernization efforts that extend beyond compliance activities. The deferral for SRCs and non-public companies will afford other entities the opportunity to leverage the knowledge and experience gained from larger public company implementation.
Board members expressed appreciation to preparers for their informative responses to the FASB outreach efforts. They learned that although insurers are diligently executing their implementation efforts, due to the large amount of process, systems, data, and control changes needed to implement, as well as the potential lack of available internal and external resources and timely vendor solutions, extra time is needed. Based on this information, they agreed to what they considered to be a very long lead time between publication of the final standard in mid-2018 and ultimate adoption 3.5 to 5.5 years later.
The FASB noted that a few respondents suggested the FASB create a transition-related practical expedient for reinsurance transactions to adopt the guidance on an individual contract or reinsurance contract basis (rather than an entity basis) based on the classification of the counterparty to the contract (e.g., use the SRC effective date if the counterparty were an SRC). The Board concluded that this was not a viable approach at this point due to the numerous additional questions it raised.
The Board is expected to vote by written ballot to issue a final ASU with the revised effective dates by mid-November.
US Insurance Practice Leader, PwC US
Richard de Haan
Global Actuarial Leader, PwC US
Managing Director, National Professional Service Group, PwC US