MA503 Professional Accounting

This article from the Accounting Today dated 17th May 2017 could be linked to the topics of accounting regulation and measurement (IASB releases insurance contracts standard. (2017). The title of the article is “IASB releases insurance contracts standard”. In this article, proper explanation has been given on how IASB releases insurance contracts standard. IASB has issued its long-awaiting standards for treating insurance contracts after so many years as this issuance was essential for getting access to consistent treatment for all types of insurance contracts that have insurance obligations are now accounted for using current values rather than historical cost (Weil, Schipper & Francis, 2013).

The new insurance standard (IFRS 17) replaces the older interim standard that was effective from 2004 and known as IFRS 4. There was lot of issue with the older insurance standard (IFRS 4) and that is the only reason why there was a need to have new insurance standard (IFRS 17). The Chairman of IASB (Hans Hoogervorst) was of the opinion that standard are used in accordance to the national setting. In that case, when it is looked around the world, it can be noted that there are several use of myriad national standards that are highly divergent as well as antiquated that ultimately hampers the quality of the information and leads to substandard and cannot be comparable easily. Most of the insurers provide non-GAAP measures if they use historical cost. Furthermore, they often produce the measurements based on current valuation for future analysis purpose. Hence, the current practice is highly divergent in nature as well as not of sufficient quality as it requires long time to implement any of the new standards (Saunders & Cornett, 2014).

It is noted that IASB has been working with FASB (Financial Accounting Standards Board) in the US for several years for bringing improvement in their insurance accounting standard as it is their main convergence projects used for harmonizing International Financial Reporting Standards with US GAAP. Furthermore, the accounting standard for insurance under IFRS was not mentioned or included as it is rigorous by nature and comes under US GAAP. This finally leads to get access to number of different approaches in several countries for different types of insurance. In the present accounting world, there is various range of accounting methods that are used where IASB warned regarding the fact that countries experiences some of the significant changes than others after introducing new standard (Samkin et al., 2016).

Inclusion of items that is present in the accounting news 

The items that are mentioned in the news article are issuing new standard for treatment of insurance contracts. In accordance with the lease accounting as well as financial instruments convergence projects, it can be noted that the two Boards had decided to go separate ways. Here, FASB planned to finalize an accounting standard for longer duration insurance contracts such as life insurance. The other accounting body such as IFRS standard is mainly applicable to both long-term as well as short-term insurance contracts of different types such as car insurance, health insurance and life insurance (Proposed Accounting Standards Update—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. 2017).

On analysis, it can be stated that it will be biggest change for the life insurance contracts specially. As far as short-term insurance is concerned, it gets less affected by the implementation of new standard as it is straightforward in nature (Allen & Ramanna, 2013). Addition to that, measuring the life insurance liability is considered to be more complicated. It is significant to consider the time value of money. Even the deposits are counted under revenue in certain parts of the world after there is measuring the liability and recognizing revenue for specified time. Deposits for investment schemes will be added back to the revenue. It is highly divergent for recognizing the profit. In that case, it is necessary to estimate the profit in the new standard after implementing homogenous rules for both revenue recognition as well as profit recognition (Pierce, Morrison & Glicksman, 2014).

There is significant difference present from the FASB standards when there are three different standards that cover insurance activities. There is one standard but with different sub models and goes in the same direction. The main change that is present in US GAAP will be that time value of money that is significant for usage in current scenario (Peterson, Petelenz & Jacobsen, 2014). Although, it is the short-term contracts where FASB decides not to use discounting method

Furthermore, it can be stated that present valuation of the liability introduces with property and casualty business that makes the big difference.  IFRS 17 will involve insurers for providing a balance sheet valuation of their insurance liabilities that combines measuring of the expected probability-weighted future cash flows that depends upon the updated assumptions for recognizing profit over period where services are provided under the contract (Anantharaman, 2015).

Linking major issues that are presented in the selected news article 

There was issue with the previous insurance (IFRS 4) and for this there was a need to replace the older one with new insurance standard (IFRS 17) that is better in every single ways. Ernst & Young stated the fact that the new standard represents the most important change to insurance accounting requirements (Accounting Standards Updates—Effective Dates. 2017). It was clearly stated in the IASB guidelines that the new insurance standard provides greater consistency in financial reporting where the insurance industry understand on how to change the way in which insurance liabilities are measured. The new standard provides for higher level of disclosure that helps in comparing it with the existing financial reporting process. Furthermore, there are certain changes that coincide with other major changes to the financial reporting that is used for treatment of financial assets under the Standard IFRS 9 Financial Instruments as well as eventually help in bringing more volatility in the reported profit (Anderson et al., 2016).

The effective date for applying the new standard will be on 1^st of January 2021. Within the time span of three and half years, there is sufficient time to think of preparing the new standard as per the requirements. Rather, it is essential to start their for implementing the new standard as soon as possible and it is also known fact where insurance companies have already started working on implementing the new standard that will help in final decision-making process (Christ & Burritt, 2015).

IFRS 17 is the new insurance standard that issue insurance contracts for reporting purpose as presented in the balance sheet where there is fulfillment of cash flows. In this case, the expected profit is used for providing insurance coverage that will be ascertained as a profit or loss for specified time as the insurance coverage treatment. It is needed for the insurance companies to act under the new standard that distinguishes between the groups of contracts where they are expected to make profits from group of contracts that are expected to produce losses. IFRS 17 is the new insurance standard where companies need to update the fulfillment cash flows at each reporting date after using their current estimation of the amount, cash flows uncertainty as well as calculation of discount rates (Holder et al., 2013).

The main purpose of the assignment is to analyze the improvement proposals that are laid down by FASB that explains Employee Shared-Based Payment Accounting in relation to the Compensation Stock. In this study, four respondents has been selected who provide comment on the exposure draft that dictates surplus tax benefit as well as deficiency recognition as mentioned in the income statement that was not mentioned before. For this, Symmetrical Equity approach should be implemented for reducing the volatility of the expenses that is taken from the Income Statement.

This study deals with various accounting standards that needs to be introduced as well as recommended by FASB where the Board make comment on the Exposure drafts from different industries and the corporate bodies. In order to implement any changes, it is essential to get feedback from the corporate bodies so that it is easy to improve the standards as well as guide corporate bodies for implementing the standards in the given format (Gammon et al., 2016). 

The paper mainly focus on current proposed improvement in the accounting standard where the intention of non-employee shared based payment accounting will be easily improved or enhanced. In other words, it is noted that there are several developments that are present in the non-employee share based payments of accounting where it shows the sentiments of the non-employee in an organization that needs to be attained and conduct operations in the most appropriate way. It is necessary to maintain good relationship between operating environments where improvement can be made in the payment accounting system (Freedman, 2017).

The Standard has proposed many ideas as well as involved organization from different industries for taking part in the commenting process where feedback is provided. Various changes are laid down in the form of questions by the FASB and it is the responsibility of business organization to answer the question on whether they agree or disagree with the statement mentioned in the exposure draft (Exposure Drafts & Public Comment Documents. 2017).

It is necessary for the organization to answer the questions that are related to the business so that it will be helpful in getting the viewpoint of four main respondents that are taken from different industry sectors. The questions are related to tax benefits, complexity, deficiencies as well as cost that help in maintaining the information that are accessible in the financial statement. It mainly depicts the relationship between cash flow as well as additional tax benefits that are mentioned where permission from the entities are required for undertaking accounting policies election as well as tax payment process and proposed expansion of the business. The feedback of the answers will help in determining the changes that have suggested usefulness in the current economy practices (Exposure Draft and Comment letters. 2017).

Debate so far 

Heiskell and MacGillivray and Associates

Heiskell and MacGillivray and Associates is one of the accounting and auditing firm that is headquartered in Australia where they are ready to answer the questions relating to new as well as improved accounting standards. According to the company, they agreed to eliminate PIC pool of accounting as it reduces the level of cost as well as increases complexity to great extent in the given process of accounting. This particular accounting and audit firm is of the opinion that related expense for the compensation should be included in the income statement so that tax deficits and benefits will have equal importance at the time of implementation. It was stated by the auditing firm that there should not much delay for identifying the surplus tax benefits. To answer the third question, the firm was of the opinion that the above process or actions come under the heading operational activities. Heiskell and MacGillivray and Associates said yes to all the questions asked that has been implemented by FASB where they are happy with the changes that was proposed earlier and feels no further changes on matters relating to non-employee share based accounting payments (Ehoff Jr & Gray, 2014).

Raytheon Company

Raytheon Company is innovative as well as technological leader company that is popular for their defensive technologies, civil market software as well as security tools in and across the world. Raytheon Company is an US based company that aims at building or developing strong corporate governance. This particular company answers question on 2, 3 and 5 that are accessible in the exposure draft. Raytheon Company disagrees with Heiskell and MacGillivray and Associates on the second question. Rather, Raytheon Company believes that FASB should implement a model where all the deficits and benefits of excess tax are indicated in the equity. It was suggested by Raytheon Company for using Symmetrical Equity approach that will provide better results as recommended by the Board (DeLong et al., 2016).

American Bankers Association

American Bankers Association is one of the association where the participants of banks operates in USA that are current and looks forward for bringing improvement in the banking system as well as operational as a bank (American Bankers Association, & American Bankers Association. 2013). This association highly appreciate with the changes that have been proposed earlier by FASB in matters relating to Employee Share-based payment accounting and properly answers to all the questions that have been mentioned in the exposure draft. This particular association answers to all the questions given but disagrees to one question. This association opposes to the fact where identifying excess tax benefits as well as deficiencies that is shown in the income statement. It is this association that properly identifies the additional taxes on the income statement that will help in creating the difference in the financial report as well as compensation expenses.

Visa Inc

Visa Inc is one of the global leaders that deals in online payment technology as well as tries hard to bring improvement in the payment systems in and across the world. Visa Inc properly understands the opportunity for providing suggestions for bringing improvement as proposed by FASB. It is stated that Visa Inc answers to all the questions that are present in the Exposure Draft. Visa Inc agrees to all the propositions that are previously stated by FASB but disagrees with the recommendations of the additional tax benefits as well as deficiencies as mentioned in the income statement. Therefore, it is understood that the proposal implemented by FASB may reduce the level of complexity for given companies and raises to volatility of expenses in relation to the income tax (Deegan, 2014).

Importance of the Proposal 

The suggested proposal is significant as it explains the fact upon the need for bringing improvements in relation to employee share-based payment accounting where the compensation over the stock needs urgent improvement (Deegan, 2013). In addition, the given proposal has been implemented to bring improvement at the time of preparing the financial report that can reduce the work pressure of the accountants. Here, cash paid by the employees for the shares proves to be beneficial for tax holding purpose of the employees.

Conclusion 

At the end of the study, it is concluded that it is clearly mention in FASB with respect to the employee share-based payment accounting that depicts the fact among the four respondents, Weiskell and MacGillivray Association was the auditing firm is of the opinion that no changes is required in the initial exposure draft and comment letter. Rest, all the other respondents are of the opinion that there is need for changing the proposal with respect to recognition of the additional tax benefits as well as deficiencies as mentioned in the income statement. As far as other proposal is concerned, all the respondents had agreed to the fact that the proposal is highly neglected because it mainly creates volatility of the expenses as shown in the income statement. It is thereby important to bring improvement in the current segment as it will change the situation on matters relating to employee stock-based payment accounting.

Reference List

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