Amendment to long-duration contracts improvements to exclude certain contracts or legal entities sold and derecognized.
The FASB issued an ASU to provide entities an accounting policy election to not apply the targeted improvements to the accounting for long-duration contracts standard to contracts or legal entities sold and derecognized before the effective date when the entity has no significant continuing involvement with them. The election may be applied on a transaction-by-transaction basis.
Insurance entities in the scope of ASC 944 on accounting for long-duration contracts, excluding holders of insurance contracts and non-insurance entities.
SEC filers, except smaller reporting companies 1,2
Annual periods – Fiscal years beginning after
Interim periods – In fiscal years beginning after
Early adoption allowed?
Yes. If early adoption is elected, the transition date is either the beginning of the prior period presented or the beginning of the earliest period presented.
1. An SEC filer is an entity that is required to file or furnish its financial statements with either (1) the SEC or (2) with respect to an entity subject to Section 12(i) of the Securities Exchange Act of 1934, as amended, the appropriate agency under that Section. Financial statements for other entities that are not otherwise SEC filers whose financial statements are included with another filer’s SEC submission are not included in this definition. [Master Glossary]
2. A company’s determination about whether it is eligible to be a ‘smaller reporting company’ is based on its most recent filing determination in accordance with SEC regulations as of November 15, 2019. [944-40-65-2(a)]
The Board amended the transition guidance provisions of its ASU on targeted improvements to the accounting for long-duration contracts. The amendments state that:
The amendments include examples of forms of significant continuing involvement that (1) prohibit an insurance entity from applying the accounting policy election, and (2) allow an insurance entity to apply the accounting policy election.
The amendment is effective consistent with the effective dates of the amendments in ASU 2020-11.
The Board made its decision based on outreach from insurance companies. They indicated that applying the guidance to contracts or legal entities sold and derecognized before the effective date could create operational challenges and not provide decision-useful information to financial statement users.
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