Despite some heavy duty accounting changes on its
agenda, the Financial Accounting Standards Board is still making room for more narrow or industry-specific issues, with several proposals published in just the last week handed up by the board’s
Emerging Issues Task Force.
The EITF has been wrestling with how insurance companies should account for deferred acquisition costs, or the costs associated with writing new insurance contracts. Insurers typically recognize many such costs as assets, rolling them into the long-term life of the contract and writing them down over time.
FASB is
proposing a change in Topic 944 of the Accounting Standards Codification that would require insurers to expense more of their acquisitions costs directly through the income statement. FASB staff published a draft of the proposed change that it has in mind, but the proposal is not yet in final form.
Mark LaMonte, a managing director at Moody’s Investors Service and a member of the EITF, said the insurance proposal is the most significant of the EITF’s recent proposals. Companies have typically taken a “pretty liberal” approach in deciding which costs should be run through the balance sheet, he said.
The new guidance would allow insurers to capitalize only costs that are “directly related to the origination of successful insurance policies,” he said. The EITF still has more work to do on the proposal before it is ready to invite public comment, but FASB published the staff draft to signal insurers about the direction the rules are headed, he said.
In addition to the changes for insurers, FASB published a proposal for an accounting standards update that addresses
how health care entities should account for legal costs associated with medical malpractice and similar types of claims. The board also published a proposal to address how
pharmaceutical companies should account for fees paid to the federal government.
Finally, FASB is proposing an
accounting standards update related to defined contribution pension plans to change the way companies would account for loans against 401(k) plans. LaMonte said that particular proposal would only affect regulatory filings related to pension plans and would have no effect on financial reporting seen by investors.