On March 11, 2015, the Financial Accounting Standards Board (FASB) made some important decisions about the ongoing project, Insurance-Disclosures about Short Duration Contracts.
Claims development table
The FASB decided that all years in the claims development table that precede the current reporting period and the related disclosure about the history of claims duration should be presented as required supplementary information (RSI) and not as a footnote, as previously was discussed.
The RSI will likely require auditors to add an explanatory paragraph to the auditor’s opinion and will likely require additional procedures to be done by the auditors to ensure such information is presented in accordance with the new guidance and is consistent with the basic financial statements and disclosures.
The FASB decided to include a disclosure objective of providing information about claim frequency, along with a description of methodologies for determining claim frequency information, unless it is impracticable to do so.
Incurred-but-not-reported (IBNR) liabilities
The FASB decided that for each accident year presented in the claims development table, entities should disclose the amount of IBNR liabilities plus expected development on reported claims and provide an explanation of the methodologies used for determining the amounts disclosed. The FASB previously voted to include health insurance claims in such disclosure as well.
Effective date and transition
The FASB decided that for public business entities, the final guidance should be effective for annual reporting periods beginning after December 15, 2015, and for interim reporting periods within annual reporting periods beginning after December 15, 2016. The FASB decided on a one-year delay for all other entities, with early adoption permitted for all entities.
The FASB affirmed that the expected benefits justify the perceived costs of the guidance included in the draft Update and directed the staff to proceed to a final Accounting Standards Update for vote by written ballot.
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