Financial Services – Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts

On August 21, 2019, the Financial Accounting Standards Board (“FASB”) released an exposure draft to delay the effective dates for Accounting Standard Update (ASU) No. 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts (“ASU 2018-12”). ASU 2018-12 was adopted to “…improve, simplify, and enhance the financial reporting requirements for long-duration contract issued by insurance entities.”

The original effective dates for ASU 2018-12 were as follows:

• For public business entities, the amendments in Update 2018-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
• For all other entities, those amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application of the amendments is permitted.

Originally, the FASB received a technical agenda request to defer the effective date of the updates in ASU 2018-12 for public entities by one year.

As part of this request and as noted in the exposure draft, “The Board developed a philosophy to extend and simplify how effective dates are staggered between larger public companies and all other entities. Under this philosophy, a major Update would first be effective for entities that are Securities and Exchange Commission (SEC) filers (per the Codification’s Master Glossary definition), excluding entities eligible to be smaller reporting companies (SRCs) under the SEC definition. For all other entities, the Board will consider requiring an effective date staggered at least two years after the effective date for SEC filers, excluding entities eligible to be SRCs.”

The newly proposed effective dates, based on the philosophy noted above are as follows:

• For SEC filers, excluding entities eligible to be SRCs as defined by the SEC, the amendments in Update 2018-12 would be effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The determination of whether an entity is an SRC would be based on an entity’s most recent determination in accordance with SEC regulations as of the issuance of amendments in a final Update on the effective date for Topic 944. Early application of the amendments in Update 2018-12 would be permitted.
• For all other entities, the amendments in Update 2018-12 would be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early application of the amendments in Update 2018-12 would be permitted.

Comments related to this exposure draft are due by September 20, 2019. Please watch for additional updates in the months to come.