The Financial Accounting Standards Board has voted to defer the effective date of its long-duration insurance contract standard for one year in response to the coronavirus pandemic, as it takes over the process of conducting post-implementation reviews of some of its recent accounting standards such as revenue recognition, leases and credit losses.
Last Wednesday, FASB members met virtually and voted to delay the insurance accounting standard for all insurance entities for one year. The board plans to issue a final accounting standards update formalizing that decision sometime later this year, according to spokesperson Christine Klimek.
Jeff is a founding member of Informed Consulting. He has 25+ plus years of employee benefits experience working with enterprise employers, digital health companies, health plans, insurance carriers, InsureTech, HCM, and financial wellness companies.
Via Informed Consulting, Jeff served as the CRO (Seed Round, Series A, and Series B) at Nayya. He held various sales leadership positions in 12 years at Benefitfocus, a benefits administration company. At Benefitfocus, Jeff developed an ecosystem distribution market for early-stage digital health and financial wellness companies. Prior to Benefitfocus, Jeff worked for health plans and insurance carriers for 13 years.
Jeff was named by Employee Benefits Advisor as “30 Benefit Thought Leaders to Know” and “30 People to watch in Benefits 2017”. Jeff has been featured in CNBC, Inc Magazine, Forbes, Employee Benefits News, US News and World Report, SHRM Magazine, and numerous other publications.
Julia Hu is an American entrepreneur and the co-founder and CEO of Lark. Founded on the personal experience of having grown up with an undiagnosed chronic condition, Julia is passionate about bringing compassionate care to those preventing or managing chronic disease. Hu was named to Business Insider’s 30 Under 40 Changing Healthcare list and was awarded as a member of the UCSF Health Awards Hall of Fame in 2021, as well as the EY Entrepreneurial Winning Women™ North America Class of 2021. Prior to founding Lark in 2011, Julia ran global startup incubator, the Clean Tech Open, built a sustainable construction startup, and was an Entrepreneur-in-Residence at Stanford’s StartX incubator. She is on the board of the Council for Diabetes Prevention and a Singularity University faculty member. Hu received her Master’s and Bachelor’s degrees at Stanford University and half of an MBA from MIT Sloan before founding Lark.
Bernie Dyme is president and CEO of Perspectives LTD, a behavioral health firm committed to delivering high-quality employee assistance programs, behavioral health, and organizational consulting services.
He is passionate about ending the stigma attached to mental health ensuring that everyone in companies has full access to mental health services and also focuses on prevention and early intervention. He is an active member of more than a dozen professional and community organizations that work toward his passion of bringing resources to all employees and organizations to ensure full access to help. These include the Employee Assistance Professionals Association (EAPA), the Society of Human Resource Professionals (SHRM), and the Executives Club of Chicago. He is also the Chair of the Advisory Council of The Crown Family School of Social Work, Policy and Practice at the University of Chicago. He is the past president of the Board of Directors for the Chicago Coalition for the Homeless and is currently an active member of the Board.
Bernie is a licensed clinical social worker (LCSW). He has his master’s degree in social work from the University of Chicago.
Under the effective-date delay, large public companies will be required to implement the insurance guidance for fiscal years beginning after Dec. 15, 2022, and interim periods within those fiscal years. For all other entities, the guidance will be effective for fiscal years starting after Dec. 15, 2024, and interim periods within fiscal years beginning after Dec. 15, 2025. The guidance also will permit companies to early-adopt as of the prior period or earliest period presented, giving companies the option to reduce the number of comparative reporting periods from two to one.
FASB has been deferring the effective dates of a number of its major standards since the outbreak of the pandemic, as accountants and their organizations and clients faced challenges in adjusting to a remote work environment and the economic downturn. Its new chairman, Richard Jones, who took over from longtime chairman Russell Golden in July, is concentrating on doing post-implementation reviews of some of the major new standards like revenue recognition, leases and credit losses, as well as looking at FASB’s packed agenda of projects to see which ones should be the biggest priorities for the near future (see story).
'Quality control for standard-setting'
FASB recently took over the job of conducting post-implementation reviews from its parent organization, the Financial Accounting Foundation, and set up a web portal over the summer where accountants and other stakeholders can learn more about the PIR process.
“We view our PIR process as really key from the standpoint of being quality control for our standard-setting,” said FASB technical director Hillary Salo. “As soon as we issue a final standard, we start our normal activities related to monitoring adoption and implementation of that standard. But for these major standards, we really wanted to make sure that they were going through the official PIR process, which has three different stages associated with it. We’ve already been through the post-issuance date implementation monitoring with regards to these projects, and we’ve really moved into the post-effective date evaluation of the costs and benefits, which is where we start to get into some of that quality control phase of our standard-setting process.”
The portal will provide more information about how the process works. “There was a change in moving the PIR process to the FASB staff,” said Salo. “I think that's really helped us from the standpoint of being able to bring that in-house and make sure that we’re being as effective and efficient as possible with regards to being able to address issues that may come up with our outreach efforts through the PIR process. We wanted to make sure that people actually understood what the PIR process was and the different stages of the PIR process and what that meant from a stakeholder engagement perspective in each of those different stages. The portal is really helpful because it outlines those stages and the process in plain English. Especially when the staff is reaching out, it's really helpful for people to understand the full timeline of the different outreach efforts that we’re looking for from stakeholders to help us evaluate the standards that we’ve issued.”
For now, the portal isn’t a vehicle for accepting comments on the standards. “The comments don’t necessarily come through the portal,” said Salo. “They would come either through our technical inquiry process — we already have that portal on our website — or they can come through agenda requests, which may come in emails to me, for example, or they can just be through our global outreach effort as part of our PIR process.”
FASB has been leading roundtable discussions of its credit losses standard, also known as CECL for the Current Expected Credit Loss model it uses, as well as the leases standard, along with Transition Resource Group meetings for helping companies implement standards like CECL and revenue recognition. Those roundtable meetings helped the board get a better understanding of the issues faced by accountants so it could address some of the problems that emerged before the standards were fully adopted.
The CECL, leases and revenue recognition standards are taking priority right now in the PIR process. “We just had a leasing roundtable discussion in September, which I think was a really great way for us to bring preparers, auditors and users together to talk through what they learned through implementing the standard — what were the costs, what were the benefits — and to be able to highlight certain issues that were learned during the implementation process that we may need to think about having potential standard-setting actions on,” said Salo. “From that roundtable, we were able to identify a few issues that the team is now working on, to pull together a plan to come back to the board to say what are the next steps with regards to these issues that were identified as part of that roundtable discussion.”
It’s unclear at this point whether revenue recognition, which took effect ahead of the leases and CECL standards, will be the first to have a PIR report delivered by FASB to the FAF trustees. “We’ve certainly completed our pre-adoption PIR process related to revenue recognition, and we’re currently working on our post-effective date evaluation of costs and benefits associated with revenue,” said Salo. “All three of them are really in that second stage right now, but we’re not necessarily prioritizing one over the other. We’re working on all of them concurrently. I can't tell you which one is going to hit the finish line first.”
It’s also unclear whether FASB will later do post-implementation reviews of other major new standards such as hedging, and classification and measurement of financial instruments. “Not every project will go through the full PIR process,” said Salo. “That's up to the board to decide what we complete the whole post-implementation review process on. Those are certainly eligible to be added into the process, but at this point in time, they're not currently on the list.”
She doesn’t expect there will be significant process changes in how FASB does the post-implementation reviews compared to how the FAF used to perform them.
“It's really just being able to bring it in-house and make it more effective and efficient for us to do it and more on a real-time basis,” said Salo. “In the past, they may have been waiting longer to start the PIR process, years after the adoption of the standard, and now what we're looking to do with the PIR process is really to use more of that quality control function, which means being able to look at those issues on a more real-time basis and be able to address whether there are any education materials that may be necessary to issue, or if there’s standard-setting that's required to be done to ensure that the costs and benefits are as we expected when issuing the standard. From our standpoint, it really just allows us to be able to continue the work that we want to do in monitoring the implementation and adoption of the standards and be able to listen to stakeholder feedback on more of a real-time basis. That's really the key is understanding what questions stakeholders have, their experiences in adopting the standards, and really listening to that and being able to react to it.”
FASB is still setting its priority list for future standards, but the PIR process is a top priority in the meantime. “We've had some significant standard-setting over the last few years,” said Salo. “Now it's time to step back and make sure we're listening to stakeholders. ... In addition, we've stepped a little bit back during the COVID-19 crisis from having standard-setting and putting out a lot of things that require comment letters and things like that, just because we understand from our stakeholders’ perspective that there's a lot going on in this environment. So we don’t want to necessarily flood preparers and others with a lot of additional work unless it's something that's really more time sensitive. We’ve really focused on making sure that we're there to be able to help our stakeholders if there are emerging or critical issues, or time-sensitive issues, that are coming up with regards to this environment. That's really been one of our focuses: on technical inquiries and Q&As that have come out of some of the technical inquiries that have come in through our our system, and really trying to just be responsive to listening to stakeholders and helping them understand how this unique environment can be potentially impacted from an accounting perspective.”
FASB is still trying to determine which projects on its agenda should be more of a priority. It is at various stages of its projects on goodwill impairment and distinguishing liabilities from equity, and those remain works in progress. In the midst of the pandemic, it may consider changes in the standards for going concern, as so many companies have faced challenges staying in business. Other constituents have been wondering about how to account for government assistance funds from sources such as the Paycheck Protection Program. There is no standard under U.S. GAAP for government assistance, so some accountants have instead been turning to the guidance in International Financial Reporting Standards. FASB has set up a portal where accountants and others can see information related to how it is responding to the pandemic.
“We have a COVID-19 portal on our web page which identifies board meetings where we talked about issues that are relevant to the current environment or where we’re posting Q&As that might be helpful for stakeholders,” said Salo. “We’re really trying to have one place where people can come to the FASB website to be able to see what we’re doing in the current environment to be responsive to stakeholder needs.”
