Tentative Board Decisions
Tentative Board decisions are provided for those interested in following
the Board’s deliberations. All of the reported decisions are tentative and may
be changed at future Board meetings.
June 4, 2014 FASB Board Meeting
Insurance—Disclosures
about Short-Duration Contracts. The Board discussed which potential
disclosures about short-duration contracts should be
required.
Disclosure Requirements
The Board decided to
require all insurance entities that issue short-duration contracts to disclose
the following information, aggregated or disaggregated so that useful
information is not obscured by either the inclusion of a large amount of
insignificant detail or the aggregation of items that have different
characteristics, in annual financial statements:
Incurred and paid claims
development tables
- Information about incurred claims and claim adjustment expenses and paid
claims and claim adjustment expenses, on a net basis after risk mitigation
(that is, through reinsurance), by comparing the most recent 10 years in which
claims were first reported (claims development)
- Reconciliation of the net amount of cumulative incurred and paid claims to
the aggregate carrying amount of the liability for unpaid claims and claim
adjustment expenses recognized in the statement of financial position, with
separate disclosure of ceded reinsurance that is disaggregated in the same way
that a reporting entity disaggregates its disclosure of claims
development.
Frequency and Severity of Claims
- Information about the number of reported claims that affect incurred
claims and allocated claim adjustment expenses
- Information about the amount of incurred but not reported liabilities
included in the claims development tables.
Discounting
- For liabilities of unpaid claims and claim adjustment expenses that are
presented at present value in the financial statements, the effects of
discounting on the financial statements, including the aggregate amount of
discount deducted from the liability for unpaid claims and claim adjustment
expenses, the amount of interest recognized during the period, and the line
item(s) in which the interest accretion is classified
- Based on the information in the paid claims development tables, the
percentage payout of claims for each of the most recent 10 accident
years.
The Board decided to require disclosures about material changes
in judgments made in calculating the liability for unpaid claims and claim
adjustment expenses, including reasons for the change and the effects on the
financial statements, in both interim and annual financial
statements.
The Board decided that the requirement to disclose
information about the liability for unpaid claims and claim adjustment expenses
in paragraph 944-40-50-3 should be required for interim periods as well as for
annual reporting periods.
Transition and Effective
Date
The Board made the following decisions with regard to
transition:
- Upon initial application of these disclosure requirements, an insurance
entity would provide comparative disclosures for each prior period presented,
except for the disclosure of incurred and paid claims development tables and
the disclosure of the details about material changes in judgments made in
calculating the liability for unpaid claims and claim adjustment expenses,
which should be applied prospectively.
- An insurance entity would not be required to disclose information about
claims development that occurred earlier than five years before the end of the
first financial reporting year in which the guidance is first applied.
- An insurance entity would not be required to apply the transition
disclosure guidance in Subtopic 250-10 on accounting changes and error
corrections.
Next Steps
The Board directed the staff to
draft the disclosure requirements to reflect the Board’s tentative decisions and
to perform additional outreach about auditing considerations for disclosures of
incurred and paid claims development tables and considerations about the costs
and benefits of disclosures about claims development and claims frequency for
health insurance entities. The Board will evaluate its disclosure decisions and
the need to issue a revised proposed Update in light of that
feedback.
Accounting
for Financial Instruments: Classification and Measurement. The Board
continued redeliberating the February 2013 proposed Accounting Standards Update,
Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities, specifically discussing the
presentation and disclosure of financial instruments.
Presentation of
Financial Instruments in the Statement of Financial Position
The
Board decided not to change how entities present financial assets and financial
liabilities in the statement of financial position; however, the Board decided
to require that entities disclose in the notes all financial assets and
financial liabilities grouped by measurement category and form of financial
assets.
Parenthetical Presentation of Fair Value for Financial
Instruments Not Reported at Fair Value
The Board decided that public
business entities would be required to disclose the fair value of financial
assets and financial liabilities that are measured at amortized cost in
accordance with Topic 820, Fair Value Measurement, either (1) parenthetically on
the face of the statement of financial position or (2) in the notes to the
financial statements. This disclosure would not be required for receivables and
payables due in less than a year and demand deposit liabilities. The Board
decided that entities other than public business entities would not be required
to provide this disclosure.
Presentation of Financial Assets Carried
at Amortized Cost That Are Subsequently Identified for Sale
The
Board decided not to change the current presentation requirements for financial
assets measured at amortized cost that are subsequently identified for
sale.
Parenthetical Presentation of Amortized Cost for an Entity’s
Own Outstanding Debt Instruments Measured at Fair Value through Net
Income
The Board affirmed the current requirement that entities
reporting their own debt instruments at fair value through net income should
disclose the difference between the aggregate fair value and the aggregate
unpaid principal balance of such outstanding debt instruments. The Board decided
not to require entities to disclose the amortized cost of those instruments
parenthetically on the face of the statement of financial
position.
Next Steps
The Board will continue to discuss
presentation and disclosure of financial instruments, including the matters not
discussed at today’s meeting.