On the Horizon

Long-Duration Insurance Contracts


In August, the FASB will issue a final Accounting Standards Update (ASU) that improves financial reporting by insurance companies that issue long-duration contracts such as life insurance and annuities.

The new guidance:
  1. Requires updated assumptions for liability measurement. Assumptions used to measure the liability for insurance contracts will be reviewed—and, if there is a change, updated—at least annually, with the effect recorded in net income.
  2. Standardizes liability discount rate. The liability discount rate will be a standardized, market-observable discount rate (upper-medium grade fixed-income instrument yield), with the effect of rate changes recorded in other comprehensive income.
  3. Improves measurement of market risk benefits. The two previous measurement models will be reduced to one measurement model (fair value), resulting in greater uniformity across similar market-based benefits and better alignment with the fair value measurement of derivatives used to hedge capital market risk.
  4. Simplifies amortization of deferred acquisition costs on a more level basis.
  5. Requires enhanced disclosures, including rollforwards and information about significant assumptions and the effects of changes in those assumptions.
For calendar-year public companies, the changes will be effective in 2021. For all other calendar-year companies and organizations, the changes will be effective in 2022. Early adoption is permitted.

 

Cloud Computing Arrangements


In late August, the FASB will issue a final ASU intended to reduce complexity and diversity in practice by clarifying the accounting for implementation costs of a cloud computing arrangement that is a service contract. The ASU is based on a consensus of the FASB’s Emerging Issues Task Force (EITF) (Issue No. 17-A).

The new ASU aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs of a cloud computing arrangement that is a service contract will be expensed over the term of the cloud computing arrangement, which includes reasonably certain renewals.

For transition, organizations have the option to apply the guidance either retrospectively or prospectively to implementation costs incurred after the date of adoption. The transition disclosures depend on the transition approach an organization selects.

For calendar-year public companies, the changes will be effective for annual periods, including interim periods within those annual periods, in 2020.

For all other calendar-year companies and organizations, the changes will be effective for annual periods in 2021, and interim periods in 2022.