Accounting Update: What you need to know for 2014 South/Presentations... · Accounting Update: What you need to know for 2014 ... SSAP No. 1 – Disclosure of Accounting Policies,

Accounting Update: What you need to know for 2014

Scott Hall, Principal – Johnson Lambert

Agenda

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Statutory Accounting Update

GAAP Accounting Update

Auditor’s Update

Questions and Answers

Statutory Accounting Update

Substantive Change

Non-substantive Change

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Statutory Update- Substantive Change

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SSAP No.104R – Share-Based PaymentsWhat about non-employees?

Statutory Update- Substantive Change

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SSAP No.104R – Share-Based PaymentsThe 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)

Statutory Update - Substantive Change

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SSAP No.105 – Working Capital FinanceInvestments (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

Statutory Update- Non-substantive Changes

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SSAP No. 26 – Bonds, Excluding Loan-backedand Structured SecuritiesEffective: January 1, 2014Make-whole provision bond amortization periodMake-whole not considered for premium/discountamortization unless we know issuer is going to callthe bond before maturity

Continuously callable bond premium amortization periodUse first call date if lockout period existsExpense entire premium at acquisition if no lockout

Callable bondsYield to worst used for all callable bonds


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SSAP No. 86 – Accounting for DerivativeInstruments, Hedging, etc.Effective January 1, 2014Adopts ASU 2013-10Clarifies what qualifies as a benchmark interest rate (theFed Funds Effective Swap Rate) for hedge accountingApplies GAAP definition of a benchmark interest rate Deletes prior guidance requiring the same benchmarkinterest rate for similar hedges.


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SSAP No. 92 – Accounting for PostretirementBenefits Other than PensionEffective January 1, 2014Adoption with modification EITF 06-04, Accounting forDeferred Compensation and Postretirement BenefitAspects of Endorsement Split-Dollar Life InsuranceArrangementsEndorsement split-dollar life insurance contracts do notsettle the liability for postretirement benefit obligations(toavoid a double charge to surplus for the cash surrendervalue.)


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SSAP No. 97 – Investments in Subsidiary,Controlled and Affiliated EntitiesEffective January 1, 2014Modifies “Determining the Valuation Method” flowchartto reference the accounting for downstream holdingcompanies


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FHLB reporting and disclosure changesEffective January 1, 2014Impacts multiple SSAPsSSAP No. 1 – Disclosure of Accounting Policies, Risks& Uncertainties and Other DisclosuresSSAP No. 30 – Investments in Common Stock(excluding investments in common stock of subsidiary,controlled or affiliated entitiesSSAP No. 52 – Deposit-Type ContractsSSAP No. 15 – Debt and Holding Company Obligations

GAAP Accounting Update

Effective 2014 for Non-Public Entities

Revenue Recognition

Other ASUs on Horizon (2015 effective)

Private Company Council

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GAAP Update- Effective 2014 (Non-Public)

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ASU 2013-02: Comprehensive Income (Topic 220),Reporting of Amounts Reclassified out of AccumulatedOther Comprehensive IncomeIf changes in OCI are at least in part due toreclassifications between OCI and Net Incomebefore OCITrack reclassified amounts and disclose on face ofor footnotes to financial statements


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ASU 2013-04: Liabilities (Topic 405), ObligationsResulting from Joint and Several Liability Arrangementsfor Which the Total Amount of the Obligation is Fixed atthe Reporting DateIf jointly and severally liable with other entities topay an amount that will not change due tomeasurement uncertainty as of the reporting dateReport liability based on amount entity agreed topay plus best estimate of additional amounts itexpects to payAdditional disclosure requirementsNote: ASU still applies if liability subject to changefor reasons other than measurement uncertainty


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ASU 2013-07: Presentation of Financial Statements(Topic 205). Liquidation Basis of AccountingIf imminent that company will be liquidated with noexpectation of return on liquidationAdditional disclosure requirementsModifications to how assets are measured andcosts accrued


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ASU 2013-08: Investment Companies (Topic 946),Amendments to the Scope, Measurement, andDisclosure RequirementsApply this ASU to determine if company is aninvestment company subject to additionaldisclosuresAlso relevant if you report investments at fair valueusing the practical expedientIf issuer is no longer an investment company dueto this ASU, practical expedient could be disallowed

GAAP Update- Revenue Recognition

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ASU 2014-09: Revenue from Contracts with Customers (Topic 606)Revenue under ASC 944, Financial Services-Insurance is scoped outWarning- other insurance company revenue streamsStay 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


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ASU 2013-11: Income Taxes (Topic 740), Presentationof an Unrecognized Tax Benefit When a Net OperatingLoss Carryforward, a Similar Tax Loss , or a Tax CreditCarryforward ExistsEarly Adoption PermittedApplied ProspectivelyGenerally present as reduction to DTA for NOLcarryforwardPresented as liability under certain exceptions


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ASU 2014-01: Investments – Equity Method and JointVentures (Topic 323), Accounting for Investments inQualified Affordable Housing ProjectsEarly adoption permittedRetrospective application

ASU 2014-04: Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon ForeclosureEarly adoption permittedModified retrospective transition method or a prospective transition method


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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 EntityEarly adoption permittedApplied 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.


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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, ConsolidationEarly adoption permitted.Applied Retrospectively

ASU 2014-11: Transfers and Servicing (Topic 860), Repurchase-to-maturity Transactions, Repurchase Financings, and DisclosuresEarly application prohibited. Cumulative effect presented as an adjustment to retained earnings on effective date No comparative disclosures are required

GAAP Update- Private Company Council

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Definition of a Public Business Entity (PBE)determines whether an entity can use private companycouncil (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.

GAAP Update- Private Company Council

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No. Alternatives under US GAAPASU 2014-02 Accounting for goodwill subsequent to

a business combinationASU 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

Auditor’s Update

Using Internal Audit

Application of Independence Rules to Affiliates

Non-attest Services

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Auditor’s Update- Using Internal Audit

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Management Takeaways from SAS 128:If you have internal auditors, talk to your externalauditors about efficienciesDon’t be surprised if external auditor:Asks internal audit different questions than inprevious yearsDocuments use of internal audit in engagementletterAsks internal audit to sign a representation letter

Auditor’s Update- Affiliate Independence Rules

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Management Takeaways:Help your auditors remain independentBe prepared to provide detailed documentation ofall affiliates

Auditor’s Update- Non-attest Services

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Management Takeaways:Management’s responsibilitiesWhat non-attest provider can/can’t do

Scott Hall, CPAPrincipal

Johnson [email protected]

919-719-6413