The insurance industry has been discussing “convergence” for seemingly forever. Back in 2002, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) agreed to develop a single set of accounting standards that would be compatible around the world and to coordinate their work to ensure compatibility.
And here we are, over a decade later, and not much closer. Though I’ve sat through numerous meetings, conference sessions, conference calls and seminars discussing convergence to a single set of accounting standards for the insurance industry, we’re still a long way from it.
In fact, in the most recent strategic plan from the Securities and Exchange Commission (SEC), the organization backed away from International Financial Reporting Standards (IFRS) convergence, saying that they would “consider, among other things, whether a single set of high-quality global accounting standards is achievable.”
That’s a far cry from their previous strategic plan, issued in 2010 when the SEC pledged “support for a single set of high-quality global accounting standards,” specifically the convergence between FASB and IASB standards.
So is the race to convergence over? Maybe. And maybe not.
Three years ago, the industry operated under the assumption that convergence was inevitable and that insurers needed to be prepared to file IFRS-compliant statements for fiscal year 2013, and only one set of IFRS-compliant statements for 2015.
But reality interrupted the best-laid plans of the regulators. Differences that at one time seemed trivial suddenly became insurmountable. The latest discussions on insurance contracts and financial instruments led the two groups to agree to disagree essentially leaving the convergence project in a lurch, as the one set of books became two sets with two different methods of accounting.
So what should U.S. insurance companies do now?
For years, we’ve been cautioning insurers to be prepared for any eventuality. Most critically, we’ve urged them to focus on the differences between FASB and IASB standards. US-based GAAP standards have historically been rules-based, while IASB has relied on principles-based standards.
In addition, we’ve encouraged our customers to be prepared to file multiple statements under different standards. Of course being able to work with multiple accounting bases is key for most accounting departments; reporting with different bases and different standards requires a new level of flexibility and decision-making prowess.
Regarding insurers specifically, the NAIC has pledged to be a go-between and moderator for the industry. As new proposals are brought forth by the FASB and IASB, the NAIC has pledged to review and provide comments, issuing either a yes or no, or proposing modifications to state regulators.
In the meantime, be prepared for more deliberations with regards to convergence. While the IFRS convergence project is a reality, it’s certainly not ready to go for a walk.
David Zdechlik, CPA, CGMA, is the senior analyst for SunGard’s insurance business. Mr. Zdechlik is an expert in regulatory changes in the insurance industry, including the rules and regulations from the National Association of Insurance Commissioners (NAIC), Securities and Exchange Commission (SEC), Financial Accounting Standards Board (FASB) and International Financial Reporting Standards (IFRS).
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