The theory of insurance has been
around as long as humans have. The point of insurance is to aid in reducing
risks and spreads the risk from the individual to a larger community which
diminishes the risk that every insurance policyholders will have losses at the
same time. Insurance also offers a substantial foundation of long-term finance
for both the public and private divisions.  Insurance contracts in financial statements
are to be characterized as short-duration or long-duration agreements. Long
term policies comprise policies like whole-life insurance and annuities, where
short term contracts would comprise property and liability insurance policies. All
insurance policies have a rule to be in a legal form or text.   In American insurance policies are organized
by the Financial Accounting Standards Board (FASB) by state law and each state may
identify that they only need explicit forms for explicit types of insurance.
Furthermore, to make sure these regulations are being obeyed these policies
must be then accepted by the state insurance department. There are also
insurance rules from the International Financial Reporting Standards (IFRS) that
must be used by the world about how certain types of contacts should be stated
in financial statements, like how to insurance companies report their
statements. There have been two major rules created by FASB and IFRS in the
last year that are becoming issues for accountants due to the time and energy
that has to be given to follow them. ASC 606 is being proposed by FASB to
progress financial standard on recognition of revenue from contracts with
customers. IFRS 17 is IFRS’s new insurance contract that will entail detailed
disclosures for insurance company’s financial statements. The changes to the
disclosures will offer investors more info on these insurance companies documented
monies from insurance policies and the extent of risks ascending from their insurance
policies. (Chan, 2016) Some feel that these rules will be costly and are not
worth the time and energy, while others, like myself, feel that they are much
needed and will completely help the insurance industry.

            FASB
and the International Accounting Standards Board (IASB) distributed joined
direction on recognizing revenue from contracts with customers. The new
guidance is a major achievement to improve this important area of financial
reporting. In June 2014, the FASB and the IASB proclaimed the creation of the
FASB-IASB Joint Transition Resource Group for Revenue Recognition (TRG). The
objective of this group is to notify the Boards about possible application problems
that might occur when businesses state using the newly created revenue standard.
The group was also in place to help investors better comprehend explicit facets
of the newly created standards. ASC 606, Revenue from Contracts with
Customers, was issued mutually by the FASB and IASB on May 28, 2014. For
public entities, the original active date for yearly reporting periods begin
after December 15th, 2016. The ASC 606 rule was then differed to the active
date of for another year, so public business entities, not-for-profit entities,
and employee benefit plans, the effective date would begin after December 15,
2017. All other entities the effective date would be after December 15th, 2018.
(ASC 606 — Revenue from Contracts with Customer, n.d.) The new amendment will
be effecting all businesses that have contracts to transfer goods and services
to clients in exchange for money. The purpose of ASC 606 is to create guidelines
on how to account for the nature, timing and risk of revenue from contracts
with customers for the users of financial statements. The ones that made this
standard want to remove discrepancies and flaws in the current revenue
requirements, have a stronger outline for revenue issues, and improving the
similarity of revenue recognition ways throughout all industries. The new ASC
606 standard will not alter the demands that revenue be acknowledged for only
quantities not anticipated to be returned. Though, because a right of return is
in existence marks the price flexible and subject to the constraint which will
end in a variation in timing of revenue recognition to the degree a company
determines that the appraised sum varies from the estimation under current GAAP
rules. Being consistent with GAAP rules, rights of return can be contractual or
based on a business’s customary practice. (Impact of the New Revenue
Recognition Standard, 2015)Also, the standard was created to deliver improved
disclosure rules and to streamline how the statements are arranged by decreasing
the quantity of requirements that the companies must obey by. All insurance policies
are to be recorded under the same guidelines as before, ASC 944, however some
insurance companies usually perform other services to their customers that are
actually not thought of as insurance policies under ASC 944. In these cases, the
need to conform and understand ASC 606 is significant and must not be ignored.
These types of other services that insurance companies do that are not under
ASC 944 which include but are not limited to agency and advisory type
arrangements, claims processing, property valuation, appraisal services, and info
risk management services. These types of services could be done on an unrelated
basis from the underlying insurance policies and the performance obligations might
be different for those services in comparison to the performance obligations of
the underlying contract. What this leads to is the need to separately recognize
and calculate the suitable revenue recognition arrangement for each performance
obligation acknowledged by the insurance company. This will create some challenges
when the contract amount for insurance intermediaries includes services for
claims handing, policy endorsements, risk management and must be independently be
examined for allocation of the contract amount to these performance
obligations. However, this will be drastically beneficial for the insurance
company financial statement users to understand the risks and rewards of this
company. (Jacobs, 2016)The
International Accounting Standards Board (IASB) created a team to work on what
was originally called the “Insurance project” in 1997 but it actually took
twenty years for it to be fully completed. Now the new insurance accounting
standard IFRS 17 will be in effect for the annual reporting periods beginning
on Jan. 1, 2021. The fact that there was no globally accepted insurance
accounting standard made it very hard for investors and analysts to be able to compare
insurance companies’ which then generated the use “non-GAAP” measures to
evaluate the performance of insurance companies. IFRS 17 finally produces a global
accounting standard for insurance policies. Its purpose is to create a reliable
framework for the acknowledgment, measurement, presentation and reporting of insurance
policies. Which is supposed to make financial reports more beneficial and clear
because it will offer additional info about the worth of insurance obligations
because these companies will measure insurance policies at present value; they
show the time value of money in projected payments to settle sustained claims;
and companies will measure their insurance policies based solely on the
obligations shaped by these contracts. Info about success is explained more as businesses
will have to deliver dependable data on the components of present and impending
profits from insurance agreements. IFRS 17 will be valid also for reinsurance policies,
reinsurance policies held; and investment agreements with discretionary contribution
features, only if the company issues insurance policies too. The General Model for
Globalization gives a formula on how insurance contract assets should be evaluated.
This formula relies on the approximations of future cash flows, the
modification for the time value of money, risk modification for non-financial
risks, and contractual service margin (CSM). CSM embodies the unearned profit
for a collection of insurance policies that the business will recognize over
time as it delivers the amenities. These approximations of impending cash flows
are remeasured each reporting period that means that specific alterations in anticipated
future cash flows are fixed contrary to the CSM and are then recognized in
profit or loss over the residual contract period. Companies are also given a
choice of accounting policy to either show the effects of alterations in
discount rates by putting it in profit or loss or other comprehensive income. Insurance
contract revenue must be then documented in the statement of comprehensive
income as the entity’s consideration for giving the services under the
contracts, and the service expenditures will be documented based on claims and expenditures
sustained throughout the specific period. These revenue and expenditure quantities
discount any non-distinct investment factor. The insurance companies must then show
their results independently of their finance revenue or expenditures. IFRS 17
demands widespread disclosures to offer info on the recognized amounts from
insurance policies and the degree of risks that can happen because of these insurance
policies. Examples of these disclosures are but are not limited to the
reconciliations of the carrying quantities of insurance policies from the
opening to the closing balance and with connections among the movements in the
liability to the quantities recognized in the statement of comprehensive
income. The new standard will also force companies to restate comparative info.
To recognize the issues in providing consistent info, these businesses have two
different choices for transition purposes. They can use the modified
retrospective approach where generalizations are permitted or the fair value
approach. Using the new standard force companies to use substantial alterations
in the info systems and procedures they use to create their financial reports, applicable
controls, as well possibly changing the employee that are involved in the
accounting processes. It would be sensible for insurance companies to formulate
a comprehensive communications plan to give investors, market analysts, and stockholders
more simplicity to the alterations to their financial statements and profit
profiles. Insurance companies should start strategizing for how they plan to
start implementing IFRS 17. Impact assessment studies will be able to help these
businesses plan those steps, figure out the amount of energy needed to follow
this standard, and describe the financial impressions that will be made. Insurance
companies should not to observe the IFRS 17 being just like any other expensive
governing requirement but look at the standard as a way to create improved cooperation
and collaboration amongst the Finance and Risk/Actuary departments. The IFRS 17
will be an incentive for insurance business to fix and reconfigure the state of
their forthcoming financial reporting ways. Deloitte’s global IFRS insurance
leader Francesco Nagari states that IFRS 17 will take much energy to put in
effect for companies but a common international accounting language will permit
customers, investors, and other involved parties to be able to better compare
insurance products across diverse countries. Raj Juta from Deloitte states
that insurance companies should start changing for this new standard quickly
because waiting for them to begin can end in disorder within insurance corporations
and they could realize too late that they are not well equipped to stay on top
of the new rules .However, beside the problems that could occur, it will result
in many paybacks. The IFRS 17 will aid in clients making better choices in
their insurance purchases, particularly when the prices vary considerably throughout
the world. Also, insurance analysts will not have to be bothered much regarding
the varying standards among the different companies in different countries.
Lastly, venture capitalists and other investors can practice IFRS 17 to boost
their portfolios and to choose investments better. Others also suggest that
procurement of master’s degree in accounting can definitely help accounting specialists
investigate into international accounting standards, especially in the
insurance sector.  (IFRS 17 Could
Impact Multinational Insurance Companies, n.d.)

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There
are many individuals that are opposing these new insurance rules because Life
insurance and annuities are intricate to begin with, and a change in insurance
accounting rules with brings hurdles such as the fact that companies will need
more facts and figures. IFRS 17, for example, does not directly affect America
but it will effect professionals that are a part of a business in America that
do business with other countries. This means that these accounting professionals
will have to now study and follow the IFRS 17 procedures. These procedures
demand that they must follow all IASB rules. Other issues that will come from
the IFRS 17 accounting rule for insurance will be that the necessities forced
by the IASB that requests substantial amounts of work in terms of dividing
portfolios. IFRS 17 will force individual insurance businesses to divide
portfolios even more in-house to recompense for profit- and loss-making
portfolios which will lead to insurance firms being faced by granular distinction
amongst and within explicit portfolios. Also insurers have to use a specific
measurement model for ever reporting period. This model is to make sure your
reports include discounted cash flows, probability-weighted cash flows, risk
adjustment, and contractual service margins. Then separate their contracts into
three categories such as contracts that are onerous, contracts that carry no
risk of becoming onerous and contracts that don’t apply to either of the first
two categories. (IFRS 17 Could Impact Multinational Insurance Companies,
n.d.) These insurance companies will need additional data technology, internal
controls where means many more people in a trade that has previously been
confronted by cutbacks. ASC 606 forces companies to figure out the impact the
standard would have on the previous fiscal year. For public businesses who have
three years of data they must gauge the influence on two previous years.
Companies must also look over contracts that began numerous years before the
effective state of the new standard and may even have to do dual tracking of
revenues for the retrospective period which will definitely be a time-consuming
and difficult chore. Companies that imagine having alterations amongst
their present revenue accounting and the new method they must use under the new
rule might opt for the full retrospective changeover technique. This is because
revenue will be reflected steadily for every year existing in the financial
statements. Obeying to ASC606 will certainly encompass a widespread renovation
of methods, procedures and controls across all departments of insurance
companies. (ASC 606: Benefits of Early Adoption of the New Revenue Recognition
Standard, n.d.)  Companies are holding
off on adapting to the new standard because they believe that their insurances
policies are under ASC 944 but they do not realize that if they are out of that
scope in the slightest they could still be subject to the rule because there
are revenue streams that do fall under ASC 606. Research shows that IFRS 17 is
going to affect 450 listed insurers who manage 13 trillion dollars in assets.
Baker A study piloted by top 10 accounting firm Baker Tilly Virchow Krause, LLP
showed that 60 percent of insurance corporations are hardly ready to state
using the new auditing standard.  Baker
Tilly’s staff also say that execution of the new standard will disturb a
variation of business functions so it is important that internal resource
restrictions be in place when considering to evaluate and the updated standard.
(Insurance Companies Not Prepared to Implement New Accounting Standards, 2017)Willis
Towers Watson said that these rules will affect the capability to pay dividends
and management bonuses, and meet market-wide performance goals. Even the accounting
firm Deloitte says that the effort of the accountants and companies will create
operation expenses for the insurers.by an estimated three and four billion
dollars for insurers as a whole. (Jones, 2017) This will also lead to companies
needing to hire someone that already has been trained in these types of rules.
Companies will look for future employees with greater education and experience
with more insights into global accounting as well as skills for dealing with
international insurance policies. As you can imagine, it would be easier
to hire someone from out of the country because they will have greater
understanding. Hiring others from overseas will in turn lead to less jobs for
Americans.  

To
conclude, both ASC 606 and IFRS 17 have the objective of changing insurance
financial reporting for investors and others so they can better understand
them. The objective of ASC 606 is to create principle ways to report the useful
info to these user in the financial statements regarding the nature and
improbability of revenue from insurance policies with their customers. While
the IFRS 17 is an international standard for reporting insurance policies to
help the same people understand the insurers risk level, productivity, and
financial wellbeing. As we can see these rules will lead to more updated and
useful data for users of the financial statements. Obviously we know this will
lead to exponentially more work for companies and accountants because they will
have to make alterations to their operating metrics, data systems, evaluating
specific revenue streams and weighing the need for further internal controls
over financial reporting. (Jacobs, 2016) However, it seems apparent that these
changes will be made because it is worth it for the investors to feel
comfortable enough to financial support these insurance companies. This is
almost the same situation as America not wanting to give up their usage of
Generally Accepted Accounting Principles (GAAP) for IFRS so we can all run on
the same international standards. We know that these changes will have to be
made eventually so adapting to them quickly instead of resisting will make the
change of rules easier for the company in the long run. So many pieces of
business will be affected by these rules and there is so much at stake, so the
sooner a corporation can acclimatize to the new rules, the sooner it can yield
its assets. This process will take time to gain a better understanding but preemptive
businesses will start discussions with auditors and shareholders as soon as
possible to figure out the exact influence there will be on revenue recognition
for their organization.(ASC 606: Benefits of Early Adoption of the New Revenue
Recognition Standard, n.d.) IASB Chairman, 
Hans Hoogervorst, believes that reduced quality accounting has turned
investors away and the benefits of the new rules will compensate costs by a
wide margin and that the improved transparency of the market will definitely
bring enhanced invest ability of the insurance sector. (Jones, 2017)