The Financial Accounting Standards Board has decided to revert to a Generally Accepted Accounting Principles approach to insurance contracts, scaling back its joint project with the International Accounting Standards Board, Tammy Whitehouse of Compliance Week reports.
The joint project which, according to its stated objective on the FASB’s website, is “intended to improve, simplify, and converge the financial reporting requirements for insurance contracts and to provide investors with decision-useful information,” was drastically cut back and altered following a FASB meeting last Wednesday. Both the FASB and the IASB were pushing for convergence in an attempt to bring U.S. insurers’ accounting standards in line with those elsewhere, which would have helped with cross-border investing, according to the Financial Times.
At the meeting, FASB representatives decided that the proposal, which sought to provide new accounting standards for all companies dealing with insurance contracts, would introduce too many problems for non-insurance entities, Compliance Week reports.
The proposed standard would require a long and unwieldy list of items that would have to be defined as exceptions, making it very difficult for the standard to be a helpful tool. FASB member Larry Smith suggested that the more efficient path would be to create a standard just for insurance entities, Compliance Week reports.
Instead of pressing ahead with the planned IASB convergence, the FASB will revert to the existing GAAP model and try to make improvements to that.
The National Association of Mutual Insurance Companies called the change of plans a “major victory” for U.S. insurers.
“For the past year, we have forcefully advocated against changes to GAAP accounting for insurance contracts that would deviate significantly from current statutory accounting reporting requirements,” NAMIC President and CEO Charles Chamness said in a statement. “GAAP are universally recognized as the gold standard in the world of accounting, and we’re obviously very please the FASB came to agree with us.”