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Federal Accounting Guidance Proposed for Insurance Programs

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Jan 25th 2016
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The Federal Accounting Standards Advisory Board (FASAB) is seeking comments by March 29 about its proposed exposure draft on insurance programs, issued last month, that would eliminate certain standards and establish three insurance categories.

The board, which provides accounting guidance for federal reporting entities, intends “to improve federal financial reporting and to better inform readers about the operating performance of insurance programs and the risk of loss to the federal government from adverse events,” FASAB Chairman Tom Allen said in a prepared statement.

According to the proposal, the project seeks to ensure that insurance programs' risks are adequately reported in federal financial reports.

Statement of Federal Financial Accounting Standards (SFFAS) 5, Accounting for Liabilities of the Federal Government, provides standards that apply to insurance and guarantee programs, including a requirement to report assumed risks. But the information provided about insurance programs “is not comparable or informative,” the exposure draft states. “Further review found that it is challenging to determine the financial results and position of insurance programs.”

The proposal also defines liability and describes measurement attributes unavailable when SFFAS 5 was developed, the draft states. It also withdraws the existing SFFAS 5 standards for insurance and guarantee programs in paragraphs 97-121.

With a goal of transparency and providing meaningful information about insurance program costs and liabilities, the proposal establishes the following three insurance categories:

  • Exchange transaction insurance programs other than life insurance. These programs collect premiums through contracts to cover loss risks from adverse events other than individuals' deaths.
  • Nonexchange transaction insurance programs. Funds are collected on-demand and/or receive appropriations to cover loss risks from certain adverse events.
  • Life insurance programs. Premiums are collected to cover risks of losses from individuals' deaths.

The proposal seeks to improve federal accounting standards for insurance programs and definitions of terms related to the programs. It also intends to provide guidance on the recognition of revenue, expenses, and liabilities by insurance programs; estimate losses for remaining coverage when contracts provide post-reporting date coverage; and encourage “concise, meaningful, and transparent information.”

That information would improve federal financial reporting for insurance programs about costs and liabilities. Readers also would learn the operating performance of insurance programs and risk exposure. “This information is essential to meeting the stewardship and operating performance objectives,” the draft states.

The proposed guidance would allow consistent reporting for all insurance programs, according to the FASAB.

Those interested in providing comments about the exposure draft are asked to answer eight questions and explain the reasons for their opinion.

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