The Future of Insurance Accounting

Implications for the U.S. Insurance Business

Ani Verma, CPA

One thing is certain in the accounting world: the move toward fair value accounting. The Financial Accounting Standards Board (FASB) and the International Accounting Standards Boards (IASB) have signed a memorandum of understanding (the so-called Norwalk Agreement) in an effort to develop a single acceptable set of global accounting standards. These standards are gradually moving toward the principles of fair value accounting. In October 2008, the FASB decided to join the IASB's insurance contract project where the IASB is taking the lead. While decision usefulness and relevance are the IASB's main argument for applying fair value accounting to insurance contracts, professional organizations are challenging this, noting that a fair value model could result in irrelevant income volatility that may not reflect the underlying operating performance of the insurer.