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

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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 Payments

What about non-employees?

Statutory Update- Substantive Change

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• 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)

Statutory Update - Substantive Change

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• 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

Statutory Update- Non-substantive Changes

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• 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

Statutory Update- Non-substantive Changes

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• 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.

Statutory Update- Non-substantive Changes

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• 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

• f

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.)

Statutory Update- Non-substantive Changes

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• 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

Statutory Update- Non-substantive Changes

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• 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

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 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
• r footnotes to financial statements

GAAP Update- Effective 2014 (Non-Public)

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• 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

GAAP Update- Effective 2014 (Non-Public)

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• 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

GAAP Update- Effective 2014 (Non-Public)

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• 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

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 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

GAAP Update- Effective 2015 (Non-Public)

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• ASU 2013-11: Income Taxes (Topic 740), Presentation
• f 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

GAAP Update- Effective 2015 (Non-Public)

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• 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

GAAP Update- Effective 2015 (Non-Public)

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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 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.

GAAP Update- Effective 2015 (Non-Public)

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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, 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

GAAP Update- Private Company Council

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• Definition
• f

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.

GAAP Update- Private Company Council

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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

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 external

auditors about efficiencies

• Don’t be surprised if external auditor:
• Asks internal audit different questions than in

previous years

• Documents use of internal audit in engagement

letter

• Asks internal audit to sign a representation letter

Auditor’s Update- Affiliate Independence Rules

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Management Takeaways:

• Help your auditors remain independent
• Be prepared to provide detailed documentation of

all affiliates

Auditor’s Update- Non-attest Services

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Management Takeaways:

• Management’s responsibilities
• What non-attest provider can/can’t do

Scott Hall, CPA Principal Johnson Lambert

shall@johnsonlambert.com

919-719-6413