Background

In February 2022, the AcSB heard – through consultations with its Private Enterprise Advisory Committee and Not-for-Profit Advisory Committee (together, the Advisory Committees) – that accounting for life insurance contracts with cash surrender value is a high-priority topic. In March 2022, based on feedback that preparers experience application challenges, the Board decided to add accounting for insurance contracts with cash surrender value to its work plan as a future research project.

During subsequent conversations with the Advisory Committees, the AcSB heard that there is diversity in practice relating to the recognition, measurement, presentation, and disclosure of life insurance contracts with cash surrender value. Current practice includes:

(a) expensing policy premiums as paid and not recognizing cash surrender value as an asset;

(b) recognizing cash surrender value as an asset at the cash surrender amount;

(c) recognizing an asset at an amount other than the cash surrender amount in the contract;

(d) recognizing the net of insurance policy payments and change in cash surrender value as an expense; and

(e) recognizing the full policy payments as an expense and the change in cash surrender value as other income.

Based on this feedback, the AcSB decided to undertake a project to provide guidance on accounting for life insurance contracts with cash surrender value.