Published by the Financial Accounting Standards Board, 32 pages
Review by John F Burke, CPA, The CPA Journal
What's a long-duration contract? Despite the plain meaning of the words. I had no idea because the term was associated with statements dealing with insurance accounting and that's another world for me.
There must be a lot more out there like me because the FASB issued a primer described as an introduction to the three accounting models used bv life insurance enterprises in the U.S. Included in the group to be educated are members of the FASB as the document was originally developed as briefing materials for the Board. It was subsequently revised and expanded for use by a working group for international standard setters.
The three accounting models are covered by three FASB pronouncements and one AICPA SOP. The introduction includes some definitions of the terminology and structure used in the insurance industry. Illustrations used to explain the three models are based on an example portfolio or "book" of 10,000 similar policies, all sold to 35 year old nonsmokers. The pronouncements and models covered are as follows:
SFAS No. 60, Accounting and Reporting by Insurance Enterprises. The accounting model used is the premium method and is used to cover traditional long-duration insurance contracts, which by definition include most life insurance contracts, require performance of services over an extended period, and are not usually subject to cancellation by the insurer. This statement is one of a series of statements extracted from AICPA audit and accounting guides, in this case Audits of Stock Life Insurance Companies.
SFAS No. 97, Accounting and Reporting by Insurance Enterprises for …