Accounting Update: What you need to know for 2014 Scott Hall, - PowerPoint PPT Presentation

Accounting Update: What you need to know for 2014 Scott Hall, Principal – Johnson Lambert

Agenda  Statutory Accounting Update  GAAP Accounting Update  Auditor’s Update  Questions and Answers 2

Statutory Accounting Update 3 Substantive Change Non-substantive Change

Statutory Update- Substantive Change SSAP No.104R – Share-Based Payments What about non-employees? 4

Statutory Update- Substantive Change  SSAP No.104R – Share-Based Payments The NAIC adopted, with modification, the GAAP guidance as reflected in Accounting Standards Codification 505-50 – Equity Payments to Non-Employees, effective December 31, 2014. Modifications : •Non-admits any prepaid assets •Disallows the minimum value method •Requires the midpoint of range to be used for estimation (compared to low point) 5

Statutory Update - Substantive Change  SSAP No.105 – Working Capital Finance Investments (WCFIs) New SSAP allowing admitted asset treatment if certain conditions are met, effective January 1, 2014. •WCFIs represent interests in short-term trade receivables that insurers can purchase through a finance agent •Admitted assets with accounting similar to short-term investments, if approved by the SVO/NAIC 1or 2 •Insurer must submit annual filing to the SVO including audited financials of the finance agent 6

Statutory Update- Non-substantive Changes  SSAP No. 26 – Bonds, Excluding Loan-backed and Structured Securities  Effective: January 1, 2014  Make-whole provision bond amortization period  Make-whole not considered for premium/discount amortization unless we know issuer is going to call the bond before maturity  Continuously callable bond premium amortization period  Use first call date if lockout period exists  Expense entire premium at acquisition if no lockout  Callable bonds  Yield to worst used for all callable bonds 7

Statutory Update- Non-substantive Changes  SSAP No. 86 – Accounting for Derivative Instruments, Hedging, etc.  Effective January 1, 2014  Adopts ASU 2013-10  Clarifies what qualifies as a benchmark interest rate (the Fed Funds Effective Swap Rate) for hedge accounting  Applies GAAP definition of a benchmark interest rate  Deletes prior guidance requiring the same benchmark interest rate for similar hedges. 8

Statutory Update- Non-substantive Changes  SSAP No. 92 – Accounting for Postretirement Benefits Other than Pension  Effective January 1, 2014  Adoption with modification EITF 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements  Endorsement split-dollar life insurance contracts do not settle the liability for postretirement benefit obligations(to avoid a double charge to surplus for the cash surrender value.) 9

Statutory Update- Non-substantive Changes  SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities  Effective January 1, 2014  Modifies “Determining the Valuation Method” flowchart to reference the accounting for downstream holding companies 10

Statutory Update- Non-substantive Changes  FHLB reporting and disclosure changes  Effective January 1, 2014 Impacts multiple SSAPs  SSAP No. 1 – Disclosure of Accounting Policies, Risks & Uncertainties and Other Disclosures  SSAP No. 30 – Investments in Common Stock (excluding investments in common stock of subsidiary, controlled or affiliated entities  SSAP No. 52 – Deposit-Type Contracts  SSAP No. 15 – Debt and Holding Company Obligations 11

GAAP Accounting Update Effective 2014 for Non- Public Entities Revenue Recognition Other ASUs on Horizon (2015 effective) Private Company Council 12

GAAP Update- Effective 2014 (Non-Public)  ASU 2013-02 : Comprehensive Income (Topic 220), Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income  If changes in OCI are at least in part due to reclassifications between OCI and Net Income before OCI  Track reclassified amounts and disclose on face of or footnotes to financial statements 13

GAAP Update- Effective 2014 (Non-Public)  ASU 2013-04: Liabilities (Topic 405), Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date  If jointly and severally liable with other entities to pay an amount that will not change due to measurement uncertainty as of the reporting date  Report liability based on amount entity agreed to pay plus best estimate of additional amounts it expects to pay  Additional disclosure requirements  Note: ASU still applies if liability subject to change for reasons other than measurement uncertainty 14

GAAP Update- Effective 2014 (Non-Public)  ASU 2013-07: Presentation of Financial Statements (Topic 205). Liquidation Basis of Accounting  If imminent that company will be liquidated with no expectation of return on liquidation  Additional disclosure requirements  Modifications to how assets are measured and costs accrued 15

GAAP Update- Effective 2014 (Non-Public)  ASU 2013-08: Investment Companies (Topic 946), Amendments to the Scope, Measurement, and Disclosure Requirements  Apply this ASU to determine if company is an investment company subject to additional disclosures  Also relevant if you report investments at fair value using the practical expedient  If issuer is no longer an investment company due to this ASU, practical expedient could be disallowed 16

GAAP Update- Revenue Recognition  ASU 2014-09: Revenue from Contracts with Customers (Topic 606)  Revenue under ASC 944, Financial Services- Insurance is scoped out  Warning- other insurance company revenue streams  Stay tuned for further discussion from industry experts  Effective : Public – December 15, 2016, nonpublic – December 15, 2017. Private companies can adopt this ASU prior to December 15, 2017 but no earlier than a fiscal year beginning after December 15, 2016.  Application : Full or modified retrospective application approach 17

GAAP Update- Effective 2015 (Non-Public)  ASU 2013-11 : Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss , or a Tax Credit Carryforward Exists  Early Adoption Permitted  Applied Prospectively  Generally present as reduction to DTA for NOL carryforward  Presented as liability under certain exceptions 18

GAAP Update- Effective 2015 (Non-Public)  ASU 2014-01 : Investments – Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Qualified Affordable Housing Projects  Early adoption permitted  Retrospective application  ASU 2014-04: Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure  Early adoption permitted  Modified retrospective transition method or a prospective transition method 19

GAAP Update- Effective 2015 (Non-Public)  ASU 2014-08 : Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity  Early adoption permitted  Applied Prospective.  Companies are prohibited from applying this ASU to a component of an entity, equity method investment, or acquired business, that is classified as held for sale before the effective date. 20

GAAP Update- Effective 2015 (Non-Public)  ASU 2014-10 : Development Stage Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation  Early adoption permitted.  Applied Retrospectively  ASU 2014-11: Transfers and Servicing (Topic 860), Repurchase-to-maturity Transactions, Repurchase Financings, and Disclosures  Early application prohibited .  Cumulative effect presented as an adjustment to retained earnings on effective date  No comparative disclosures are required 21

GAAP Update- Private Company Council  Definition of a Public Business Entity (PBE) determines whether an entity can use private company council (PCC) accounting alternatives Currently no transition guidance for transitioning back from PCC alternatives to US GAAP that would be required by a PBE. If the Company may be considered a PBE in the future due to changes in its ownership or a public offering, adoption of PCC standards is not recommended. 22

GAAP Update- Private Company Council No. Alternatives under US GAAP ASU 2014-02 Accounting for goodwill subsequent to a business combination ASU 2014-03 Accounting for certain receive-variable, pay-fixed interest rate swaps – simplified hedge accounting approach ASU 2014-07 Applying variable interest entity guidance to common control leasing arrangements 23

Auditor’s Update Using Internal Audit Application of Independence Rules to Affiliates Non-attest Services 24