FinREC Serving the ProfessionPosted: November 11, 2019
The last Financial Reporting Executive Committee (FinREC) meeting of the year was held on November 5. The meeting covered a number of topics, including:
- Long-duration insurance contracts
- Current expected credit losses
- Digital assets
I think the best way to put the proposed papers on long-duration insurance contracts is that if you are in that industry, you should pay attention; otherwise, the rest of you can take assurance that FinREC is there, so you don’t have to deal with these things. By the way, in case you are wondering, long-duration insurance contracts are things like life insurance and annuities that last many years, in some cases decades.
The current expected credit loss (CECL) topics included issues related to insurance, as well as trying to help define when information received after the balance sheet date is the result of a subsequent event or was simply a timing issue about getting information on events that occurred prior to the balance sheet date. The reason these issues matter is because the CECL standard is explicit that subsequent events are not to be considered when determining the expected losses to be included in the financial statements. By the way, you are going to have to wait for the release of the document from AICPA to find out what is a subsequent event that should be ignored and what isn’t (unless you want to dig up the SEC speech on the topic).
Finally, we continued our discussion on digital assets, which includes crypto assets like Bitcoin and Ethereum, as well as other token-based assets that represent ownership interests or other items. I’m sure you have seen by now that typical companies will need to account for crypto assets as intangible assets and not investments. But if the owning entity is an investment company following those specialized accounting rules, then crypto assets will be accounted for as investments. If that doesn’t seem fair, remember that investment companies get to treat other assets, like real estate and commodities (e.g., oil), as investments and use mark-to-market accounting on those, so unless you want to move your entire balance sheet to mark-to-market (i.e., fair value) accounting, maybe it’s not so unfair after all.
We hope you find the work of FinREC helpful. While not officially authoritative GAAP, FinREC is there to help connect the dots and provide consensus opinions about how to deal with questions that come up from new transactions or implementing new standards. We are a resource for the profession that I hope you find useful.