Insurance Contracts with Cash Surrender Value

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 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.