Statements of Position



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This Statement of Position (SOP) provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements other than those specifically described in Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of lnvestments. The SOP defines an internal replacement as a modification in product benefits, coverages, or features that occurs by the exchange of a contract for a new contract, amendment, endorsement, or rider to a contract, or the election of a feature within a contract. Modifications that result from the election by the contract holder of a feature, coverage, or a right that was within the original contract are not considered internal replacements for purposes of this guidance as long as all of the conditions listed in paragraph 9 of this SOP are met. The SOP introduces the terms integrated and nonintegrated contract features and specifies that nonintegrated features are evaluated separately from the base contract and that integrated features are evaluated in conjunction with the base contract. Contract modifications involving integrated features are to be evaluated to determine whether the contract has substantially changed as a result of the modification. Contract modifications meeting all of the conditions in paragraph 14 of this SOP result in a replacement contract that is substantially unchanged from the replaced contract and should be accounted for as a continuation of the replaced contract. An internal replacement that is determined to result in a replacement contract that is substantially changed from the replaced contract should be accounted for as an extinguishment of the replaced contract. Unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement assets from the replaced contract in an internal replacement transaction that results in a substantially changed contract should not be deferred in connection with the replacement contract. Unamortized deferred acquisition costs and the present value of future profits continue to be subject to loss recognition testing in accordance with the provisions of FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises, as amended. The notes to the financial statements should describe the accounting policy applied to internal replacements, including whether or not the company has availed itself of the alternative application guidance outlined in paragraphs 17 and 18 of this SOP and, if so, for which kinds of internal replacement transactions. This SOP is effective for internal replacements occurring in fiscal years beginning after December 15, 2005, with earlier adoption encouraged. Restatement of previously issued annual financial statements is not permitted. Initial application of this SOP should be as of the beginning of an entity’s fiscal year (that is, if the SOP is adopted prior to the effective date and during an interim period, all prior interim periods of the year of adoption should be restated). Disclosure of the effect of the change on the results of operations of the period of change is required. If the financial statements of the year of adoption are presented separately or included in comparative financial statements, the notes to the financial statements should disclose (a) the fact that this SOP has been adopted and the effective date of adoption, and (b) the nature of any differences in accounting p

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Insurance -- Accounting -- Standards


Accounting | Taxation


Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants.

Proposed statement of position : Accounting by insurance enterprises for deferred acquisition costs on internal replacements;Accounting by insurance enterprises for deferred acquisition costs on internal replacements; Exposure draft (American Institute of Certified Public Accountants), 2004, Nov. 29



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