Accounting Standards Soon to Be Effective

Jack Humphrey, Regulatory journalist
January 10, 2012 /

A new guidance released by the Financial Accounting Standards Board will clarify which costs incurred by insurance companies can be capitalized in the acquisition of new and renewal contracts, beginning first quarter of 2012.

The changes may represent a significant change for some insurance companies because they clarify that the costs must relate to a successful effort at obtaining a contract (unsuccessful contract acquisition costs must be expensed).

In addition, the guidance clarifies that advertising costs should only be included as deferred acquisition costs (DAC) when a number of criteria are met.

The FASB and IASB finalized their proposals on balance sheet offsetting. This will mostly result in enhanced disclosures that will provide users both net and gross information for certain derivative instruments and financial instruments. The objective of the disclosures is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.

The disclosures will also provide information about the impact of collateral on offsetting arrangements and other amounts subject to a master netting agreement that are not offset on balance sheet. The new rules will be effective in 2013.


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