It’s been a long journey for the Financial Accounting Standards Board that will end – at least for Property & Casualty, healthcare and reinsurers of short term insurance contracts –with new disclosure requirements, which are expected to be issued late June 2015.

When the board voted to issue final disclosure requirements in February, FASB Chairman Russell Golden said companies will incur costs – but costs that are justified, given the better information it will provide to financial statement users. 

FASB’s long journey on this topic began with the International Accounting Standards Board in October 2008.  The boards went from looking at all insurance contracts, regardless of the type of entity, to backing away from one another based on responses from stakeholders.

IASB went its own way around 2013 and the FASB decided to tackle short term and long term contracts separately – in two phases.

No Break-y; No Fix-y.

P&C companies, among others who issue short term insurance contracts, told FASB that the accounting model for such contracts wasn’t broken in any significant way, and therefore wasn’t in need of a fix.

But users still felt they needed better disclosures so that they could better analyze those types of contracts. The board therefore decided to drop its development of revising the model for short term contracts and focus instead on providing more robust disclosures.

“I think we steered ourselves in the right direction, said FASB member Harold Schroeder, during the meeting whereby members voted to finalize the disclosures. “Thanks to the insurance industry and some others, we got on the right path and we have come up with some better disclosures,” he said.

Preparers to incur costs.

Preparers will incur additional costs, but board members felt it a necessary cost since investors have often had to resort to using information outside of financial statements to analyze P&C companies.

FASB member Marc Siegel pointed out that many P&C companies often deliver lots of Non-GAAP information in earnings releases, and as a result investors have had to rely on statutory filings, which are domestic only and which provide a partial view of a company.

Investors have also had to rely on Schedule P, said Siegel, and therefore having consolidated information at a level that is disaggregated will be of benefit to them.

A lingering concern…

The issue of disclosures, always brings with it redundancy concerns, and it was raised at the meeting by FASB Vice Chairman James Kroeker relative to two issues.

Kroeker said he had some lingering concerns about a couple of conclusions where the board could potentially be increasing the redundancy of the disclosures.

He pointed to the requirement to disclose the description of why things have changed, as one example –clarifying that he wasn’t referring to the information about what assumptions changed – but rather to “the driving reasons behind the change in assumptions which I think we’ve now drawn into GAAP disclosures will have the potential to overlap with MD&A disclosures.”

In addition, he highlighted the same concern about volumetric information – that two objectives might be shared in the same place.  “Maybe not identical but that we have potentially increased redundancy of disclosure,” he said.

He stated, however, that those concerns weren’t substantial enough to cause him to dissent on the final rules.

Source: Bloomblerg – By Denise Lugo