In another about face from convergence, the Financial Accounting Standards Board has decided to step back from a joint project with the International Accounting Standards Board on insurance contracts and take a more GAAP-like approach.

FASB determined at a recent meeting that the feedback to its proposal for a new standard on insurance contracts proved too problematic for non-insurance entities that would be affected by the standard. The proposal is focused on providing new accounting not just for insurance companies but for all companies that deal with insurance contracts as defined by the proposal.

With some lament, FASB members conceded their efforts to steer clear of writing accounting standards for specific industries didn't work in this particular case because the list of items that would need to be carved out of the standard grew too long and unwieldy. “Having a standard with over two pages dedicated to scope-outs I don't think is a very helpful standard,” said FASB member Larry Smith. “To me, it's a heck of a lot more efficient to continue down the road of having a standard for insurance entities. And to the extent we discover later there are certain types of transactions to apply to the insurance model, whatever it is, such as if banks were underwriting their products, then maybe scope them in.”

FASB Vice Chairman Jim Kroeker agreed, despite the 2008 recommendations of the Advisory Committee on Improvements to the Financial Reporting, which he served as a staff member when he was deputy chief accountant at the Securities and Exchange Commission. The current definition, with its two pages of scope exceptions, “causes me pause about whether we have the right definition of insurance if we have to say ‘but we don't mean this thing, or that thing, or the other thing.'” FASB Chairman Russ Golden, who served as senior advisor to CIFR Chairman Robert Pozen, also agreed.

Ultimately, FASB directed the staff to research a number of ways the board could start with the existing model in U.S. GAAP and determine what targeted improvements would be warranted. Some members of FASB expressed their doubts about whether FASB and IASB could achieve convergence, so questioned the wisdom of making the effort. “If I felt confident we could get converged on (the accounting for) long duration (insurance contracts), I would be OK working with the IASB, but I'm not confident of that, so I prefer targeted improvements to GAAP,” said FASB member Daryl Buck.

Smith countered that he sensed commitment from the IASB to jointly deliberate with FASB, but only on a handful of limited issues. “That's something we have to understand,” he said. “That's the game plan.”

Golden replied: “I'm not so sure that commitment is as firm as you think it is. But just because they don't have a commitment over there doesn't mean we shouldn't try to converge.”

FASB recently made clear it plans to scrap most of the two boards' joint work on classification and measurement of financial instruments, reverting to an approach that begins with U.S. GAAP and consider possible targeted improvements. The two boards are scheduled in March to begin joint deliberations on leasing, a standard that got heavy criticism from all parts of the globe for its complex approach to measuring liabilities associated with leased assets.

The National Association of Mutual Insurance Companies praised FASB's latest decision on insurance accounting. "For the past year, we have forcefully advocated against changes to GAAP accounting for insurance contracts that would deviate significantly from current statutory accounting reporting requirements,” said Charles Chamness, President and CEO of NAMIC, in a statement. “GAAP are universally recognized as the gold standard in the world of accounting, and we're obviously very pleased the FASB came to agree with us."