Insurance Contracts with Cash Surrender Value

The AcSB completed its deliberations on feedback from interested and affected parties on the Exposure Draft, “Accounting for Life Insurance Contracts with Cash Surrender Value,” considering feedback from its Private Enterprise Advisory Committee and Not-for-Profit Advisory Committee.

The AcSB approved the issuance of Accounting Guideline (AcG) 21, Accounting for Life Insurance Contracts with Cash Surrender Value, in Part II of the Handbook, subject to minor drafting changes. The Board plans to issue the AcG in September 2024.

The Private Enterprise Advisory Committee discussed feedback on the AcSB’s Exposure Draft, “Accounting for Life Insurance Contracts with Cash Surrender Value,” and the Board’s tentative decisions to address key issues raised.

The Committee supported the AcSB’s tentative decision to not provide a fair value measurement option for cash surrender value of a life insurance contract. The Committee agreed that measurement at the cash surrender amount provides the most useful information and is consistent with how many preparers currently measure cash surrender value of a life insurance contract.

The Committee supported the AcSB’s tentative decision to remove the requirement to disclose the amounts of acquisitions and terminations during the period and to retain the requirement to present change in cash surrender value and policy premiums on a net basis. The Committee also supported revising proposed Accounting Guideline 21, Accounting for Life Insurance Contracts with Cash Surrender Value, to clarify that subsequent measurement of cash surrender value would occur on the entity’s reporting date.

The Committee supported the AcSB’s tentative decision to defer the effective date by one year to January 1, 2026, to provide additional time for implementation of the Guideline. The Committee also agreed with the Board’s tentative decision to provide a consequential amendment to Section 1500, First-time Adoption, to allow the transition relief to apply on a first-time adoption of ASPE.

The AcSB will consider input from the Private Enterprise Advisory Committee as well as the Not-for-Profit Advisory Committee at its meeting on June 19-20, 2024. The Board expects to publish the final Accounting Guideline in Q3 2024.

The Not-for-Profit Advisory Committee discussed feedback on the AcSB’s Exposure Draft, “Accounting for Life Insurance Contracts with Cash Surrender Value,” and the Board’s tentative decisions to address key issues raised.

The Committee supported the AcSB’s tentative decision not to provide a fair value measurement option for contributed insurance contracts. The Committee agreed that measurement of cash surrender value at the cash surrender amount provides the most useful information and is consistent with how many preparers currently recognize contributions. The Committee also noted that a difference between the amount reported on the tax receipt at fair value for contributions and the amount recognized in revenue is not likely to cause issues in practice.

The Committee supported the AcSB’s tentative decision to remove the requirement to disclose the amounts of acquisitions and terminations during the period and to retain the requirement to present change in cash surrender value and policy premiums on a net basis. The Committee also supported revising the proposed new Accounting Guideline (AcG) 21, Accounting for Life Insurance Contracts with Cash Surrender Value, to clarify that subsequent measurement of cash surrender value would occur on the entity’s reporting date.

The Committee supported the AcSB’s tentative decision to defer the effective date by one year to January 1, 2026, providing more time to implement the Guideline. The Committee also agreed with the Board’s tentative decision to provide a consequential amendment to Section 1501, First-time Adoption by Not-for-Profit Organizations, allowing the transition relief in AcG-21 to apply on a first-time adoption of Accounting Standards for Not-for-Profit Organizations.

The AcSB will consider input from the Committee as well as the Private Enterprise Advisory Committee at its June 19-20, 2024, meeting. The Board expects to issue the final Accounting Guideline in Q3 2024.

The AcSB discussed feedback on the Exposure Draft, “Accounting for Life Insurance Contracts with Cash Surrender Value,” which closed for comment January 31, 2024. In response to this feedback the Board tentatively decided to:

• retain the proposal to require recognition of cash surrender value as an asset when an enterprise becomes the owner and beneficiary of the underlying insurance contract;
• retain the proposal to require measurement of cash surrender value at the amount that would be immediately realized upon termination of the policy;
• remove the requirement to disclose the amounts of acquisitions and terminations during the period;
• provide a consequential amendment to Section 1500, First-time Adoption, and Section 1501, First-time Adoption by Not-for-Profit Organizations, to allow the transition provisions in proposed Accounting Guideline (AcG)21, Accounting for Life Insurance Contracts with Cash Surrender Value, to be applied on a first-time adoption of ASPE or Accounting Standards for Not-for-Profit Organizations (ASNPO); and
• defer the effective date of proposed AcG-21 to year-ends beginning on or after January 1, 2026.

In May 2024, the AcSB will seek advice from its Private Enterprise Advisory Committee and Not-for-Profit Advisory Committee on these tentative decisions and will continue deliberations. The Board intends to issue the new Accounting Guideline and accompanying Basis for Conclusion in Part II of the Handbook in September 2024.

The Private Enterprise Advisory Committee received an update on the AcSB’s recent discussions and tentative decisions related to a project to develop guidance on accounting for insurance contracts with cash surrender value.

The Committee provided feedback on a draft Accounting Guideline that would provide guidance on accounting for insurance contracts with cash surrender value. The proposed Guideline would provide guidance on:

• recognition and measurement of cash surrender value;
• presentation of cash surrender value, change in cash surrender value, and policy premiums; and
• disclosure requirements.

The AcSB will consider the Private Enterprise Advisory Committee’s feedback at the September 2023 Board Meeting.

The AcSB provided feedback on a draft exposure draft that would provide guidance on accounting for insurance contracts with cash surrender value. The Board tentatively decided to provide guidance in an accounting guideline.

The proposed guideline would:

• require recognition of cash surrender value as an asset measured at the cash surrender amount;
• require recognition of the annual change in cash surrender amount and policy premiums on a net basis where a net debit is reported as expense and a net credit is reported as income; and
• establish disclosure requirements to ensure decision-useful information is provided.

The AcSB gave permission to begin the balloting process. The Board plans to issue the exposure draft in October 2023 with a minimum 90-day comment period.

The Not-for-Profit Advisory Committee received an update on the AcSB’s April 2023 discussions and tentative decisions on developing a project to address accounting issues for insurance contracts with cash surrender value.

The Committee provided feedback on potential solutions to provide guidance on the recognition, measurement, and presentation of insurance contracts with cash surrender value. The Committee also discussed the disclosures that would provide decision-useful information. In addition, the Committee discussed the accounting options for contributions of life insurance policies with cash surrender value received by NFPOs.

The AcSB will consider the feedback from its Not-for-Profit Advisory Committee at its June 2023 meeting.

The Private Enterprise Advisory Committee received an update on the AcSB’s recent discussions and tentative decisions related to a project proposal to address accounting issues for insurance contracts with cash surrender value.

The Committee discussed accounting treatment and presentation options for the cash surrender value and classification of change in cash surrender value and policy premiums. The Committee also discussed the disclosures that would provide sufficient decision useful information. Also, the Committee provided feedback on potential solutions to provide guidance on accounting for insurance contracts with cash surrender value.

The AcSB will consider the feedback from its Private Enterprise Advisory Committee and its Not-for-Profit Advisory Committee at the April 2023 Board meeting.

The Not-for-Profit Advisory Committee received an update on the AcSB’s recent tentative decisions on the development of a project to address accounting issues for insurance contracts with a cash surrender value. The Committee discussed alternative accounting treatments, presentation options, and potential disclosure requirements for insurance contracts with a cash surrender value. The Committee also provided feedback on accounting for contributions of insurance contracts with a cash surrender value and payment of policy premiums.

The AcSB will consider the feedback from its Not-for-Profit Advisory Committee and its Private Enterprise Advisory Committee at its April 2023 meeting.

The AcSB discussed the research on accounting for insurance contracts with cash surrender value. Currently, Part II and Part III of the CPA Canada Handbook – Accounting do not specifically address the accounting for the cash surrender value of an insurance contract.

The AcSB discussed feedback from the Private Enterprise Advisory Committee and the Not-for-Profit Advisory Committee that there is diversity in practice for both the initial and ongoing recognition, presentation, and measurement of the cash surrender value in an insurance contract and accounting for the premiums paid.

Based on the feedback, the Board tentatively decided that the cash surrender value of an insurance contract is an asset that should be recognized at the cash surrender amount. The Board also discussed presentation options for insurance premiums and the change in cash surrender value.

The AcSB directed staff to prepare a project proposal for consideration at its March 2023 meeting.  

The Private Enterprise Advisory Committee discussed alternative accounting treatments and presentation options for insurance contracts with cash surrender value. Committee members agreed that the cash surrender value meets the definition of an asset and thought the asset should be recognized in the financial statements at the cash surrender amount. The Committee provided feedback to the AcSB on presentation options for premium payments and the annual change in cash surrender value. In addition, the Committee discussed disclosure options.

The AcSB will consider the feedback from its Private Enterprise Advisory Committee and its Not-for-Profit Advisory Committee at the December 2022 Board meeting.

The Not-for-Profit Advisory Committee discussed accounting for insurance contracts with cash surrender value given that specific guidance is not provided in Part II of the CPA Canada Handbook – Accounting. 

Some Committee members indicated that it is uncommon for not-for-profit organizations to receive contributions of insurance contracts with cash surrender value and that cash surrender value amounts are often not material. They noted that NFPOs may not recognize contributed insurance contracts with a cash surrender value. 

The Committee discussed the presentation in the income statement and considered whether the change in cash surrender value should be presented separately from insurance premiums. The Committee also discussed whether contributed premiums should be recognized as contributions revenue.  

Some Committee members noted that there is diversity in practice for accounting for insurance contracts and that providing guidance would benefit preparers and users.  

The AcSB will consider feedback from the Not-for-Profit Advisory Committee and the Private Enterprise Advisory Committee at the Board meeting in December 2022. 

The Private Enterprise Advisory Committee discussed accounting for insurance contracts with cash surrender value given that specific guidance is not provided in Part II of the Handbook.

Some Committee members observed that insurance contracts with cash surrender value are common in practice and that cash surrender value amounts can be material. Other Committee members noted that some enterprises use whole or permanent insurance policies as an investment vehicle while other enterprises may use less-expensive term insurance to satisfy lending requirements.

The Committee discussed the presentation in the income statement and considered how the insurance premiums including the change in cash surrender value should be shown. The Committee also discussed the appropriate classification in the statement of cash flows.

A few Committee members commented that there is diversity in practice for accounting for insurance contracts and that providing guidance would benefit preparers and users.

The AcSB will consider the Committee’s feedback as well as feedback from its Not-for-Profit Advisory Committee at the Board meeting in December 2022.