The FASB has issued ASU 2022-05, which is intended to reduce implementation costs and complexity associated with the adoption of ASU 2018-12, Financial Services – Insurance Topic (944): Targeted Improvements to the Accounting for Long-Duration Contracts.
Under ASU 2018-12, insurance entities were required to retrospectively adjust contracts that were derecognized because of a sale or disposal of an individual contract or a group of contracts or legal entities before the effective date of ASU 2018-12. Without the updates of ASU 2022-05, insurance entities would be required to reclassify a portion of the previously recognized gains or losses to the Long-Term Duration Contracts (LDTI) transition adjustment. Because there is no effect on an insurance entity’s future cash flows for these derecognized contracts, the FASB concluded that these reclassifications may not provide decision useful information to investors.
The amendments in ASU 2022-05 allow an insurance entity to make an accounting policy election on a transaction-by-transaction basis and exclude contracts that meet certain criteria from applying the amendments in ASU 2018-12. To qualify for the accounting policy election, as of the effective date of ASU 2018-12, both of the following conditions must be met:The effective date of ASU 2022-05 is consistent with the effective date of amendments in Update 2020-11. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2022, and interim period within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. Early application is permitted for all entities.
The full text of ASU 2022-05 is available here.
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