New US GAAP ASU 2016-01 financial measurement

[ChrisB]

Hello,

Does anyone know if there is any information available about how the SAPWG is expected to react to the new FASB Financial Instrument Standard that was recently finalized? I don't anything on the NAIC site, but maybe it's too soon.

Thanks

[Glenn]

Hello Chris,
ASU 2016-01 just got adopted by the FASB and isn't effective until 2018 for public entities and 2019 for non public entities. It will be awhile for the SAPWG to react to this one I expect but just follow developments on the NAIC site under the Financial Condition Committees tab/AP&P Task Force/SAPWG.
Now remember STAT's underlying principle is conservatism and most assets and liabilities are carried at book value or cost based with some exceptions but the NAIC designation ultimately determines how the asset ( bonds or preferred stock instruments) is carried on the books. But Common Stock of unaffiliates is carried at fair value.

Whereas, GAAP ( former FAS 115/now ASC Subtopic 825) rules determine the carrying value based on a company's investment strategy/intent at the point of acquisition. That is Debt/Equity is either Trading or AFS ( carried at Fair Value with changes in the P&L or OCI respectively). And Debt could be Held to Maturity and carried at cost.

This ASU amends primarily the Equity accounting treatment and gives relief for non public entities. Stat already rejected the concept of "own credit risk" previously under SSAP 100 - Fair Value Measurement.

See this excerpt:

FASB Issues New Guidance on the Recognition and Measurement of Financial Instruments. The FASB has issued Accounting Standards Update (ASU) No. 2016-01, Financial Instruments ? Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments. The ASU affects public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities.

The new guidance makes targeted improvements to existing U.S. GAAP by:

-Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;

-Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;

-Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements;

-Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities;

-Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and

-Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as ?own credit?) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For private companies, not-for-profit organizations, and employee benefit plans, the new guidance becomes effective for fiscal years beginning after December 15, 2018, and for interim periods within fiscal years beginning after December 15, 2019.

The new guidance permits early adoption of the own credit provision. In addition, the new guidance permits early adoption of the provision that exempts private companies and not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost.

I think just stay tuned on this one with respect to the SAPWG but I would expect most of this to be rejected for STAT.

Regards,
Glenn S Sackett

[mcgratj1]

Hello,

Curious if there is any updates/info on what/if SAP might due related to GAAP ASC 321 as it relates to changes to Unrealized Gains/Losses recognized in Net Income
Thanks

[Glenn]

Nothing new to report on this front from a Stat perspective

[SujathaP-SF]

Originally Posted by Glenn

Nothing new to report on this front from a Stat perspective

Hello - Curious if there's been any update from STAT perspective regarding carrying Equities at fair value with unrealized gains/losses recorded in Net income (rather than Surplus as it currently is)?
The reason I ask is, since unrealized gains/losses are not currently recorded in Net income, OTTI applies to equities where if an equity is deemed impaired, we adjust the cost basis to equal fair value and record the loss in Net income through impairments. If later this equity rebounds, we don't have the ability to record the upside, since the unrealized gains would be recorded in Surplus. It appears with the current STAT guidance, we record just the 'bad' not the 'good' guy in Net income (unlike GAAP).