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Audit and Accounting Guide: Life and Health Insurance Entities 2018 Aicpa
This AICPAAudit and Accounting Guide has been developed by the Property and Liability Insurance Guide Task Force to assist practitioners in performing and reporting on their audit engagements, and to assist management of property and liability insurance entities in preparing financial statements in conformity with U.S. generally accepted accounting principles (GAAP) and statutory accounting principles.
An AICPAGuide containing auditing guidance related to generally accepted auditing standards (GAAS) is recognized as an interpretive publication as defined in AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards. 1 Interpretive publications are recommendations on the application of generally accepted auditing standards (GAAS) in specific circumstances, including engagements for entities in specialized industries.
An interpretive publication is issued under the authority of the AICPAAuditing Standards Board (ASB) after all ASB members have been provided an opportunity to consider and comment on whether the proposed interpretive publication is consistent with GAAS. The members of the ASB have found the auditing guidance in this guide to be consistent with existing GAAS.
Although interpretive publications are not auditing standards, AU-C section 200 requires the auditor to consider applicable interpretive publications in planning and performing the audit because interpretive publications are relevant to the proper application of GAAS in specific circumstances. If the auditor does not apply the auditing guidance in an applicable interpretive publication, the auditor should document how he or she complied with the requirements of GAAS in the circumstances addressed by such auditing guidance.
The ASB is the designated senior committee of the AICPAauthorized to speak for the AICPA on all matters related to auditing. Conforming changes made to the auditing guidance contained in this guide are approved by the ASB Chair (or his or her designee) and the Director of the AICPAAudit and Attest Standards Staff. Updates made to the auditing guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the Statements on Auditing Standards (SASs).
Any auditing guidance in a guide appendix or exhibit (whether a chapter or back matter appendix or exhibit), though not authoritative, is considered an "other auditing publication". In applying such guidance, the auditor should, exercising professional judgment, assess the
relevance and appropriateness of such guidance to the circumstances of the audit. Although the auditor determines the relevance of other auditing guidance, auditing guidance in a guide appendix or exhibit has been reviewed by the AICPAAudit and Attest Standards staff and the auditor may presume that it is appropriate. The Financial Reporting Executive Committee (FinREC) is the designated senior committee of the AICPAauthorized to speak for the AICPA in the areas of financial accounting and reporting. Conforming changes made to the financial accounting and reporting guidance contained in this guide are approved by the FinREC Chair (or his or her designee). Updates made to the financial accounting and reporting guidance in this guide exceeding that of conforming changes are approved by the affirmative vote of at least two-thirds of the members of FinREC.
This guide does the following:
Identifies certain requirements set forth in the FASB Accounting Standards Codification® (ASC).
Describes FinREC’s understanding of prevalent or sole industry practice concerning certain issues. In addition, this guide may indicate that FinREC expresses a preference for the prevalent or sole industry practice, or it may indicate that FinREC expresses a preference for another practice that is not the prevalent or sole industry practice; alternatively, FinREC may express no view on the matter.
Identifies certain other, but not necessarily all, industry practices concerning certain accounting issues without expressing FinREC’s views on them.
Provides guidance that has been supported by FinREC on the accounting, reporting, or disclosure treatment of transactions or events that are not set forth in FASB ASC.
Accounting guidance for nongovernmental entities included in an AICPAGuide is a source of nonauthoritative accounting guidance. As discussed later in this preface, FASB ASC is the authoritative source of U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the SEC.
AICPAGuides may include certain content presented as "Supplement,” "Appendix," or "Exhibit." Asupplement is a reproduction, in whole or in part, of authoritative guidance originally issued by a standard setting body (including regulatory bodies) and applicable to entities or engagements within the purview of that standard setter, independent of the authoritative status of the applicable AICPAGuide. Both appendixes and exhibits are included for informational purposes and have no authoritative status.
Auditing Standards Board
Ilene Kassman, ASB Member
Mike Santay, Chair
Financial Reporting Executive Committee
Michelle Avery, FinREC Member
James Dolinar, Chair
The AICPAgratefully acknowledges the following individuals who reviewed or otherwise contributed to the development of this edition of the guide: Stephen Andrews, Jennifer Austin, Dan Buttke, Will Chan, Alissa Choi, Erica Czajkowski, Katie Frank, Allison Haug, Amanda Hawkins, Christopher Howell, Jason Jacobs, Margaret Keeley, J Eric Kegler, William Kennedy, Jeff Maffitt, Brett Maly, Sarah McConnell, Andrea Medley, Brandon Mott, Dave Osborn, Tiffany Paben, Phillip Pennino, Canita Gunter Peterson, Amanda Poirot, Todd Ross,, Art Salvadori, Greg Schlaefer, Jie Shen, Christina Siena, Carrie Small, Catherine Stout, John Szymczyk, Matthew Walker and Jon Zeigler.
AICPAStaff
Ahava Goldman
Associate Director Audit and Attest Standards
KimKushmerick
Associate Director
Accounting Standards and Staff Liaison to the AICPAInsurance Expert Panel
2013 Guide Edition
Property and Liability Insurance Entities Audit and Accounting Guide Overhaul Task Force (2005–2012)
(members when this edition was completed)
Mark Parkin, Chair
Michelle Avery
Keith Bell
Alissa Choi
Maureen Downie
WilliamFerguson
Daniel Grady
Richard Lynch
Coleman Ross
E. Daniel Thomas
Magali Welch
(former members who contributed to the development of this edition)
Ken Croarkin
Martin John
Scott Lewis
WilliamLowry
Marc Smith
Ramin Taraz
AICPASenior Committees
Financial Reporting Executive Committee
(members when this edition was completed)
Richard C. Paul, Chair
Aaron Anderson
Linda Bergen
AdamBrown
Terry Cooper
Lawrence Gray
Randolph Green
Mary E. Kane
Jack Markey
Joseph D. McGrath
Rebecca Mihalko
Steve Moehrle
Angela Newell
Mark Scoles
Brad Sparks
Dusty Stallings
(former members who contributed to the development of this edition)
Jay Hanson, Former Chair
Benjamin S. Neuhausen, Former Chair
David Alexander
Robert Axel
Rick Arpin
Kimber Bascom
Glenn Bradley
Neri Bukspan
Brett Cohen
Pascal Desroches
James A. Dolinar
L. Charles Evans
Faye Feger
Bruce Johnson
Richard Jones
Carl Kampel
Lisa Kelley
David Morris
Jonathon Nus
Richard Petersen
Roy Rendino
Terry Spidell
Randall Sogoloff
Richard K. Stuart
Enrique Tejerina
Robert Uhl
Dan Weaver
Dan Zwarn
Auditing Standards Board
(members when this edition was completed)
Darrel R. Schubert, Chair
Brian Bluhm
Robert E. Chevalier
SamK. Cotterell
JimDalkin
David Duree
Jennifer Haskell
Ed G. Jolicoeur
Barbara Lewis
Carolyn H. McNerney
David Morris
Kenneth R. Odom
Don M. Pallais
Brian R. Richson
Mike Santay
Kay W. Tatum
KimL. Tredinnick
H. Steven Vogel
Kurtis A. Wolff
The AICPAand the Property and Liability Insurance Entities Audit and Accounting Guide
Overhaul Task Force gratefully acknowledges the contributions of Evan Cabat, Jean Connolly, Jennifer Englert, Robert Evans, Danielle Fandrey, Thomas Fekete, Julie Gould, Andy Gray, Linda Healy, Jay Muska, Mary Saslow, Lisa Slotznick, and Deborah Whitmore.
The AICPAand the Property and Liability Insurance Entities Audit and Accounting Guide
Overhaul Task Force gratefully acknowledge those members of the AICPAInsurance Expert Panel who reviewed or otherwise contributed to the development of this guide: Jill Butler,
Darryl Briley, Kathleen Enright, Matthew Farney, James Greisch, Kenneth N. Hugendubler, Margie M. Keeley, Joshua Keene, Rick Sojkowski, Robert Tarnok, Anthony Valoroso, and Jennifer Yaross. Additionally, the AICPAand the Property and Liability Insurance Entities Audit and Accounting Guide Overhaul Task Force thank those past members of the AICPA Insurance Expert Panel who reviewed or otherwise contributed to the development of this guide but rotated off the Insurance Expert Panel prior to the guide being completed: Amy Corbin, Elaine Lehnert, Sandra Peters, and Donald Schwegman.
AICPAStaff
KimKushmerick
Senior Technical Manager
Accounting Standards and Staff Liaison to the AICPAInsurance Expert Panel
Dan Noll Director
Accounting Standards
Guidance Considered in This Edition
This edition of the guide has been modified by the AICPAstaff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued, and other revisions as deemed appropriate. Relevant guidance issued through September 1, 2018, has been considered in the development of this edition of the guide. However, this guide does not include all audit, accounting, reporting, and other requirements applicable to an entity or a particular engagement. This guide is intended to be used in conjunction with all applicable sources of authoritative guidance.
Authoritative guidance that is issued and effective on or before September 1, 2018, is incorporated directly in the text of this guide. Authoritative guidance issued but not yet effective as of September 1, 2018, but becoming effective on or before December 31, 2018, is also presented directly in the text of the guide, but shaded gray and accompanied by a footnote indicating the effective date of the new guidance. The distinct presentation of this content is intended to aid the reader in differentiating content that may not be effective for the reader’s purposes (as part of the guide’s dual guidance treatment of applicable new guidance).
Relevant guidance issued but not yet effective as of the date of the guide and not becoming effective until after December 31, 2018, is referenced in a guidance update box; that is, a box that contains summary information on the guidance issued but not yet effective.
In updating this guide, all guidance issued up to and including the following was considered, but not necessarily incorporated, as determined based on applicability:
•
FASB Accounting Standards Update (ASU) No. 2018-15, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s
•
•
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)
SAS No. 133, Auditor Involvement With Exempt Offering Documents (AU-C sec. 945)
National Association of Insurance Commissioners Statement of Statutory Accounting Principles No. 107, Accounting for the Risk-Sharing Provisions of the Affordable Care Act
•
•
National Association of Insurance Commissioners, Statutory Accounting Principles Working Group, INT 18-03: Additional Elements Under the Tax Cuts and Jobs Act
PCAOB Staff Guidance Changes to the Auditor's Report Effective for Audits of Fiscal Years Ending on or After December 15, 2017 (PCAOB sec. 300.04)2
Users of this guide should consider guidance issued subsequent to those items listed previously to determine their effect on entities covered by this guide. In determining the applicability of recently issued guidance, its effective date should also be considered.
The changes made to this edition of the guide are identified in the Schedule of Changes appendix. The changes do not include all those that might be considered necessary if the guide were subjected to a comprehensive review and revision.
Amendments to FASB ASC (issued in the formof ASUs) are initially incorporated into FASB ASC in “pending content” boxes below the paragraphs being amended with links to the transition information. The pending content boxes are meant to provide users with information about how the guidance in a paragraph will change as a result of the new guidance.
Pending content applies to different entities at different times due to varying fiscal year-ends, and because certain guidance may be effective on different dates for public and nonpublic entities. As such, FASB maintains amended guidance in pending content boxes within FASB ASC until the roll-off date. Generally, the roll-off date is six months following the latest fiscal year end for which the original guidance being amended could still be applied.
Presentation of FASB ASC Pending Content in AICPA Audit
and Accounting Guides
Amended FASB ASC guidance that is included in pending content boxes in FASB ASC on September 1, 2018, is referenced as “pending content” in this guide. Readers should be aware that pending content referenced in this guide will eventually be subjected to FASB’s roll-off process and no longer be labeled as “pending content” in FASB ASC (as discussed in the previous paragraph).
Terms Used to Define Professional Requirements in This AICPA Audit and Accounting Guide
Any requirements described in this guide are normally referenced to the applicable standards or regulations fromwhich they are derived. Generally, the terms used in this guide describing the professional requirements of the referenced standard setter (for example, the ASB) are the same as those used in the applicable standards or regulations (for example, must or should). However, where the accounting requirements are derived fromFASB ASC, this guide uses should, whereas FASB uses shall. In its resource document “About the Codification” that accompanies FASB ASC, FASB states that it considers the terms should and shall to be comparable terms and to represent the same concept the requirement to apply a standard. Readers should refer to the applicable standards and regulations for more information on the requirements imposed by the use of the various terms used to define professional requirements in the context of the standards and regulations in which they appear.
Certain exceptions apply to these general rules, particularly in those circumstances where the guide describes prevailing or preferred industry practices for the application of a standard or regulation. In these circumstances, the applicable senior committee responsible for reviewing the guide’s content believes the guidance contained herein is appropriate for the circumstances.
Applicability of Generally Accepted Auditing Standards and PCAOB Standards
Appendix A, “Council Resolution Designating Bodies to Promulgate Technical Standards,” of the AICPACode of Professional Conduct recognizes both the ASB and the PCAOB as standard setting bodies designated to promulgate auditing, attestation, and quality control standards. Paragraph .01 of the “Compliance With Standards Rule” (ET sec. 1.310.001 and 2.310.001)3 requires an AICPAmember who performs an audit to comply with the applicable standards. Audits of the financial statements of those entities subject to the oversight authority of the PCAOB (that is, those audit reports within the PCAOB’s jurisdiction as defined by the Sarbanes-Oxley Act of 2002, as amended) are to be conducted in accordance with standards established by the PCAOB, a private sector, nonprofit corporation created by the SarbanesOxley Act of 2002. The SEC has oversight authority over the PCAOB, including the approval
of its rules, standards, and budget. In citing the auditing standards of the PCAOB, references generally use section numbers within the reorganized PCAOB auditing standards and not the original standard number, as appropriate.
Audits of the financial statements of those entities not subject to the oversight authority of the PCAOB (that is, those entities whose audits are not within the PCAOB’s jurisdiction hereinafter referred to as nonissuers) are to be conducted in accordance with GAAS as issued by the ASB. The ASB develops and issues standards in the formof SASs through a due process that includes deliberation in meetings open to the public, public exposure of proposed SASs, and a formal vote. The SASs and their related interpretations are codified in AICPA Professional Standards. In citing GAAS and their related interpretations, references generally use section numbers within the codification of currently effective SASs and not the original statement number, as appropriate.
The auditing content in this guide primarily discusses GAAS issued by the ASB and is applicable to audits of nonissuers. Users of this guide may find the tool developed by the PCAOB’s Office of the Chief Auditor helpful in identifying comparable PCAOB Standards. The tool is available at http://pcaobus.org/standards/auditing/pages/findanalogousstandards.aspx.
Considerations for audits of issuers in accordance with PCAOB standards may also be discussed within this guide’s chapter text. When such discussion is provided, the related paragraphs are designated with the following title: Considerations for Audits Performed in Accordance With PCAOB Standards. PCAOB guidance included in an AICPAguide has not been reviewed, approved, disapproved, or otherwise acted upon by the PCAOB and has no official or authoritative status.
Applicability of Quality Control Standards
QC section 10, A Firm’s System of Quality Control, 4 addresses a CPAfirm’s responsibilities for its systemof quality control for its accounting and auditing practice. Asystemof quality control consists of policies that a firmestablishes and maintains to provide it with reasonable assurance that the firmand its personnel comply with professional standards, as well as applicable legal and regulatory requirements. The policies also provide the firmwith reasonable assurance that reports issued by the firmare appropriate in the circumstances. This section applies to all CPAfirms with respect to engagements in their accounting and auditing practice.
QC section 10 applies to all CPAfirms with respect to engagements in their accounting and auditing practice. In paragraph .13 of QC section 10, an accounting and auditing practice is defined as "a practice that performs engagements covered by this section, which are audit, attestation, compilation, review, and any other services for which standards have been promulgated by the AICPAASB or the AICPAAccounting and Review Services Committee (ARSC) under the "General Standards Rule" (ET sec. 1.300.001) or the "Compliance With Standards Rule" (ET sec. 1.310.001) of the AICPACode of Professional Conduct. Although
standards for other engagements may be promulgated by other AICPAtechnical committees, engagements performed in accordance with those standards are not encompassed in the definition of an accounting and auditing practice. "
In addition to the provisions of QC section 10, readers should be aware of other sections within AICPA Professional Standards that address quality control considerations, including the following provisions that address engagement level quality control matters for various types of engagements that an accounting and auditing practice might perform:
AU-C section 220, Quality Control for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards
AT-C section 105, Concepts Common to All Attestation Engagements5
AR-C section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services6
Because of the importance of engagement quality, this guide includes an appendix, “Overview of Statements on Quality Control Standards.” This appendix summarizes key aspects of the quality control standard. This summarization should be read in conjunction with QC section 10, AU-C section 220, AT-C section 105, AR-C section 60, and the quality control standards issued by the PCAOB, as applicable.
Alternatives Within U.S. Generally Accepted Accounting Principles
The Private Company Council (PCC), established by the Financial Accounting Foundation’s Board of Trustees in 2012, and FASB, working jointly, will mutually agree on a set of criteria to decide whether and when alternatives within U.S. GAAP are warranted for private companies. Based on those criteria, the PCC reviews and proposes alternatives within U.S. GAAP to address the needs of users of private company financial statements. These U.S. GAAP alternatives may be applied to those entities that are not public business entities, notfor-profits, or employee benefit plans.
The FASB ASC glossary defines a public business entity as follows:
Apublic business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity.
a.
b.
It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
It is required by the Securities Exchange Act of 1934 (the Act), as
c.
d.
e.
amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including footnotes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.
An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.
Readers should refer to Technical Questions and Answers (Q&A) section 7100.15, “Insurance Companies and the Definition of Public Business Entity,”7 for additional information related to applying the definition of a public business entity to insurance entities.
Considerations related to alternatives for private companies may be discussed within this guide’s chapter text. When such discussion is provided, the related paragraphs are designated with the following title: Considerations for Private Companies That Elect to Use Standards as Issued by the Private Company Council.
AICPA.org Website
The AICPAencourages you to visit the website at aicpa.org and the Financial Reporting Center at www.aicpa.org/frc. The Financial Reporting Center supports members in the execution of high quality financial reporting. Whether you are a financial statement preparer or a member in public practice, this center provides exclusive member-only resources for the entire financial reporting process. The Financial Reporting Center also provides timely and relevant news, guidance, and examples supporting the financial reporting process, including accounting, preparing financial statements, and performing compilation, review, audit, attest or assurance, and advisory engagements. Certain content on the AICPA’s website referenced in this guide may be restricted to AICPAmembers only.
Select Recent Developments Significant to This Guide
Insurance Contracts Project
IASB Activities
The International Accounting Standards Board (IASB) split its insurance contract project into two phases so that some components of the project were completed by 2005 without delaying the rest of the project. Phase I addresses the application of the existing International Financial Reporting Standards (IFRSs) to entities that issue insurance contracts. The issuance of IFRS 4, Insurance Contracts, along with Basis for Conclusions on IFRS 4 and Implementation Guidance to IFRS 4, brought Phase I of the international insurance project to a close.
Phase II, initiated in September 2004, was a comprehensive project on accounting for insurance contracts.
In September 2016, the IASB issued amendments to IFRS 4 to address concerns arising from implementing the new financial instruments standard, IFRS 9, Financial Instruments, before implementing the replacement standard that the board was developing for IFRS 4. These concerns included temporary volatility in reported results. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted.
The amendments introduce two approaches: an overlay approach and a deferral approach. The amended standard will
give all companies that issue insurance contracts the option to recognize in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the issuance of the new insurance contracts standard; and
give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until 2021. The entities that defer the application of IFRS 9 will continue to apply the existing financial instruments standard, IAS No. 39, Financial Instruments: Recognition and Measurement.
The amendments to IFRS 4 supplement existing options in the standard that can already be used to address the temporary volatility.
In May 2017, the IASB issued IFRS 17, Insurance Contracts, replacing IFRS 4. IFRS 17 has an effective date of January 1, 2021, but early application is permitted provided that IFRS 9 and IFRS 15 are also applied. IFRS 17 is the first comprehensive and truly international IFRS standard establishing the accounting for insurance contracts.
IFRS 17 requires a company that issues insurance contracts to report insurance contracts on the balance sheet as the total of the fulfilment cash flows the current estimates of amounts that the insurer
b.
expects to collect from premiums and pay out for claims, benefits and expenses, including an adjustment for the timing and risk of those cash flows; and the contractual service margin the expected profit for providing future insurance coverage (that is, unearned profit).
The measurement of the fulfilment cash flows reflects the current value of any interest-rate guarantees and financial options included in the insurance contracts.
To better reflect changes in insurance obligations and risks, IFRS 17 requires a company to update the fulfilment cash flows at each reporting date, using current estimates that are consistent with relevant market information. Changes in insurance obligations due to changes in the economic environment (such as changes in interest rates) will be reflected in an insurer’s financial statements in a timely way. IFRS 17 will therefore provide current updated information about the effect of insurance contracts on a company’s financial position and risk exposure, as well as transparent reporting of changes in insurance obligations.
FASB Activities
On August 2, 2007, FASB issued an invitation to comment on An FASB Agenda Proposal: Accounting for Insurance Contracts by Insurers and Policyholders, Including the IASB Discussion Paper, Preliminary Views on Insurance Contracts. That invitation to comment included a discussion paper issued by IASB, Preliminary Views on Insurance Contracts, which set forth its preliminary views on the main components of an accounting model for an issuer’s rights and obligations (assets and liabilities) under an insurance contract. FASB issued the invitation to comment to gather information fromits constituents to help decide whether there was a need for a comprehensive project on accounting for insurance contracts and whether FASB should undertake such a project jointly with IASB.
In October 2008, FASB decided to join IASB’s insurance contract project.
On September 17, 2010, FASB issued, for public comment, the discussion paper Preliminary Views on Insurance Contracts.
In June 2013, FASB issued the exposure draft, Insurance Contracts. The guidance in the FASB exposure draft would require an entity to measure its insurance contracts under one of two measurement models, referred to as the building block approach and the premium allocation approach.
At the February 19, 2014, meeting, FASB decided to change the scope and direction of the insurance contract project as follows:
•
•
Scope. Limit the scope to insurance entities as described in existing U.S. GAAP (instead of continuing to include all entities that issue insurance contracts or purchase reinsurance contracts as proposed in the June 2013 exposure draft).
Direction of the project. The project should focus on making targeted improvements to existing U.S. GAAP.
For short-duration contracts, the targeted improvements will be limited to enhancing disclosures (not including measurement and recognition).
For long-duration contracts, decisions reached by IASB in its 2013 exposure draft, Insurance Contracts, should be considered when contemplating improvements to existing U.S. GAAP.
In May 2015, FASB issued ASUNo. 2015-09, Financial Services Insurance (Topic 944): Disclosures about Short-Duration Contracts, that requires additional disclosures about the liability for unpaid claims and claimadjustment expenses for all insurance entities that issue short-duration contracts as defined in FASB ASC 944, Financial Services Insurance.
FASB ASUNo. 2015-09 was effective for public business entities for annual periods beginning after December 15, 2015, and interimperiods within annual periods beginning after December 15, 2016. For all other entities, FASB ASUNo. 2015-09 is effective for annual periods beginning after December 15, 2016, and interimperiods within annual periods beginning after December 15, 2017.
In September 2016, FASB issued proposed ASU Financial Services Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.
In August 2018, FASB issued ASUNo. 2018-12, Financial Services Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, that will result in the following improvements:
Requires updated assumptions for liability measurement. Assumptions used to measure the liability for traditional insurance contracts, which are typically determined at contract inception, will now be reviewed and, if there is a change, updated at least annually, with the effect recorded in net income.
Standardizes the liability discount rate. The liability discount rate will be a standardized, market-observable discount rate (upper-medium grade fixedincome instrument yield), with the effect of rate changes recorded in other comprehensive income.
Provides greater consistency in measurement of market risk benefits. The two previous measurement models have been reduced to one measurement model (fair value), resulting in greater uniformity across similar market-based benefits and better alignment with the fair value measurement of derivatives used to hedge capital market risk.
Simplifies amortization of deferred acquisition costs. Previous earnings-based amortization methods have been replaced with a more level amortization basis.
Requires enhanced disclosures. They include rollforwards and information about significant assumptions and the effects of changes in those assumptions. For calendar-year public business entities, the changes in FASB ASUNo. 2018-12 are
effective at the beginning of 2021. For all other calendar-year entities, the changes in FASB ASUNo. 2018-12 are effective at the end of 2022. Early application is permitted.
The New Revenue Recognition Standard: FASB ASC 606
FASB ASUNo. 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments (FASB ASUNo. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASUNo. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASUNo. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, was effective for annual reporting periods of public business entities, certain not-for-profits and certain employee benefit plans, beginning after December 15, 2017, including interimperiods within that reporting period. Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interimreporting periods within that reporting period.
All other entities, will apply the guidance in FASB ASUNo. 2014-09 to annual reporting periods beginning after December 15, 2018, and interimperiods within annual periods beginning after December 15, 2019. Application would be permitted earlier only as of an annual reporting period beginning after December 15, 2016, including interimreporting periods within that reporting period, or an annual reporting period beginning after December 15, 2016, and interimreporting periods within annual reporting periods beginning one year after the annual reporting period in which an entity first applies the guidance in ASUNo. 201409.
Appendix C, “The New Revenue Recognition Standard: FASB ASC 606,” of this guide provides an overview of the guidance. The AICPAhas formed 16 industry task forces to assist in developing a new accounting guide on revenue recognition that will provide helpful hints and illustrative examples for how to apply the new standard. Revenue recognition implementation issues identified will be available for informal comment, after review by the AICPAFinREC, at www.aicpa.org/revenuerecognition.
In this guide, revenue recognition implementation issues developed by the insurance revenue recognition task force are directly referenced fromthe insurance entities chapter in the AICPA Audit and Accounting Guide Revenue Recognition
1
Chapter 1
TABLE OF CONTENTS
Nature, Conduct, and Regulation of the Business
General Nature of the Business
Kinds of Insurance
Legal Forms of Organization
Methods of Producing Business
Major Transaction Cycles
Underwriting of Risks
Pooling, Captives, and Syndicates
Processing and Payment of Claims
Investments
Definition of Public Business Entity
Revenue Recognition
Accounting Practices
State Insurance Regulation
National Association of Insurance Commissioners
Federal Regulation
Securities and Exchange Commission
Federal Regulation The Dodd-Frank Wall Street Reformand Consumer Protection Act
Federal Regulation Terrorism
Industry Associations
Statutory Accounting Practices
Generally Accepted Accounting Principles
Comparison of SAP and GAAP
2 Audit Considerations
Introduction
Scope of the Audit Engagement
General Considerations
Integrated Audit of Financial Statements and Internal Control Over
Financial Reporting
Additional PCAOB Audit Standards
Planning and Other Auditing Considerations
Audit Planning
Audit Risk
Risk Assessment Procedures
Understanding the Entity, Its Environment, and Its Internal Control
Common Industry Ratios and Performance Metrics
Identifying and Assessing the Risks of Material Misstatement
Performing Audit Procedures in Response to Assessed Risks
Use of Assertions in Obtaining Audit Evidence
Other Risk Assessment Activities and Considerations
Planning Materiality
Performance Materiality and Tolerable Misstatement
Consideration of Fraud in a Financial Statement Audit
Insurance Industry Fraud Risk Factors
The Importance of Exercising Professional Skepticism
Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud
Obtaining the Information Needed to Identify the Risks of Material Misstatement Due to Fraud
Identifying Risks That May Result in a Material Misstatement Due to Fraud
Assessing the Identified Risks After Taking an Evaluation of the Entity’s Programs and Controls That Address the Risks Into Account
Responding to the Results of the Assessment
Evaluating Audit Evidence
Responding to Misstatements That May Be the Result of Fraud
Communicating About Possible Fraud to Management, Those Charged With Governance, and Others
Documentation and Guidance
Use of Information Technology
Going Concern Considerations
Evaluating Misstatements
Audit Documentation
Consideration of the Work of Internal Auditors
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Title: The Maugham Obsession
Author: August Derleth
Release date: December 25, 2023 [eBook #72507]
Language: English
Original publication: New York, NY: King-Size Publications, Inc, 1953
Credits: Greg Weeks, Mary Meehan and the Online Distributed Proofreading Team at http://www.pgdp.net
*** START OF THE PROJECT GUTENBERG EBOOK THE MAUGHAM OBSESSION ***
the maugham obsession
By August Derleth
All inventors seek success. Some few achieve it. And now and then a Quintus Maugham is a bit too successful for his own health. What is a Derleth? The question pops up frequently in fantasy circles. The general consensus seems to be that a Derleth is a sort of human windmill that plucks finished manuscripts from the breeze while waving its arms in circles, printing and publishing same with its own machinery. In truth the Derleth output is prodigious, as it has been for many a year ... enough to keep rolling the presses of his own publishing firm (Arkham) as well as to keep
other publishers well supplied.
Here is top-flight Derleth.
[Transcriber's Note: This etext was produced from Fantastic Universe June-July 1953.
Extensive research did not uncover any evidence that the U.S. copyright on this publication was renewed.]
"It's always been a moot point with me," said Harrigan one evening over a glass of sherry at the Cliffdwellers' Club, "whether or not there is such a thing as a man's being too successful. I always think of Quintus Maugham."
"You have the advantage of me," I said.
"By rights he should have been famous," Harrigan went on, warming to his subject, "but things don't always work out that way. He was a plodding inventor obsessed by an idea. What inventor isn't, given a modicum of success? Perhaps he was a product of his time, for Maugham's obsession was robots."
"The principle's sound enough."
"Oh, yes. It could be practical, too. After all, machines have been operated by mechanical men or mechanical brains for years. So Maugham's idea wasn't out of line. The operation didn't work out according to Hoyle, however. Maugham was one of those gaunt earnest men, a tall fellow with deep-set eyes and an habitually grim mouth. He took himself very seriously and you were always just a little embarrassed when he tried to explain something to you—you felt that he so badly wanted your understanding."
He paused and sipped his sherry, looking reflectively out over the silvery lake.
"Where'd you meet him?" I asked. "On assignment?"
"Oh, he'd invented a little gadget connected with the recoil mechanism for the military so I was sent over to his place for an interview—the usual thing. He lived in a nice old house in Oak Park, left him by his mother and he lived pretty well, if a little on the frugal
side. He was considerate and courteous, which is a damned sight more than you can say for most of the people a reporter gets to see.
"He gave me everything I wanted to know and a good deal more besides. He wound up with a half apologetic question about his newest invention—would I like to see it? I said I would so he took me down into one of the most elaborate private laboratories I've ever seen and introduced me to Herman."
"Ah, another character," I said, pouring more sherry into his glass.
"Herman was his robot. A neat well-oiled scrupulously-clean mechanical man in the process of being born. He was run by electrical impulses and was a good deal more self-sufficient than the traditional pushbutton robot of an earlier day. Even though he wasn't quite 'born' yet Herman did a turn or two for us, up and down the laboratory, with a precision that was almost military.
"Unlike most robots of that day Herman had a physiognomy carefully moulded after a human face. He looked damnably real. He could blink his glass eyes, he could shake hands, he could nod and, because of the mobility of his plastic-rubber face, he could even smile after a fashion, though I always thought his smile a little grim.
"'The next step is to make him talk,' Maugham said. 'I believe it can be done.'
"'Can he hear?' I asked.
"'That will come,' he said.
"He seemed so sure of himself that I was almost inclined to believe him until of course I remembered all the others who had been so sure of themselves. That seems to be a characteristic of my queer people—each one has an unlimited belief in his own particular delusion.
"Well, Maugham put Herman through his paces and it was certainly novel to watch. He asked me not to write anything about Herman for publication and I didn't. I figured I owed him that courtesy. He had great plans for Herman, he explained—he meant Herman to be his general factotum and planned to perfect the robot as the housewife's
dream. If I'd had to guess I'd have said he might accomplish as much.
"Well, I examined Herman inside and out. It was uncanny, the resemblance he bore to a human being. It was Maugham's conceit to duplicate as nearly as possible the organs and characteristics of the human body. That still left room for the complicated machinery necessary. The skeleton was of steel with a plastic overlay carefully moulded into the shape of a man approximately six feet high and weighing about two hundred pounds.
"Over the entire structure he had stretched a kind of plastic-rubber made to resemble human skin in color and texture. There were doors in both front and back of course—to allow Maugham to service his robot, inspect the machinery, charge and replace the batteries, oil the parts and so forth."
"He could almost have patented that as a bachelor's companion," I suggested.
Harrigan took another draught of sherry and smiled reminiscently. "His enthusiasm was infectious until I got out into the open air and started thinking about Herman's practicability. Then of course Herman slid back to his proper plane and I saw Maugham in a more balanced perspective. He struck me then as another little man with ideas just a trifle too big for them.
"In the ordinary course of events I wouldn't have seen Maugham again but about a month later he came up with another of those military valuable gadgets and I went out to get a propaganda story for Army Intelligence. I thought at the time that Maugham looked a little harassed but he was as co-operative as before when he knew what I wanted and he came through with just the right stuff for Army Intelligence.
"After we had finished I naturally asked, 'And how's Herman?'
"He brightened a little and said that Herman was coming along fine. Forthwith he left the room and came back with his robot. He had put clothes on him and for a minute, candidly, I didn't know it was Herman.
"Maugham came up behind him and Herman said, 'Good day, Master.'
"Of course, his voice had a flat sort of scratchy sound, like a phonograph, and there was no inflection of any kind but it was undeniably speech.
"'Can he hear?' I asked.
"Maugham nodded. 'He responds to an auditory mechanism very similar in principle to an electric eye. But he's far from perfect, Mr. Harrigan, very far.'
"'I'd say he was pretty good myself,' I said.
"But Maugham only shook his head.
"'What's the trouble?' I asked.
"'He's too mechanical,' said Maugham.
"'You couldn't expect him to be human.'
"'No, but a little more human than he is,' Maugham answered.
"I had my doubts but I kept them to myself. After all I'm just a reporter. I've seen a lot of things I never dreamed were possible but none of them has warped my objectivity. Maybe he could make Herman more human but I doubted that he could.
"Herman looked as human as a typical product of the Prussian military machine. If he'd come in saluting and saying 'Heil, Hitler!' you could almost have believed in his humanity—if you'd call it that, all things considered. So I held my tongue and watched Herman.
"That robot could move around and get things for Maugham—an ashtray, his bedroom slippers, a tray with a decanter and glasses on it. He could dust things but he was pretty awkward at that and now and then knocked something over. Maugham had removed all the breakables, I noticed, so no harm was done. I saw Maugham watching Herman with undeniable triumph and self-satisfaction but nevertheless there was an undercurrent of doubt in his eyes.
"He never said a thing, however, to follow through. It was just in the way I felt, as if this triumph and self-satisfaction were somehow watered by some question he did not care to voice. I knew intuitively too that whatever it was could not readily be drawn from him. But I felt it like something tangible and, curiously—which is a testimony to his inventive skill—I felt it to be something personal between him and his robot.
"Just what was going on in his mind it was impossible for me to find out, of course."
Maugham congratulated himself on his ability to maintain his composure in the face of the reporter's interest. He was definitely uneasy about Herman and it was only now, after Harrigan had gone, that he relaxed a little. For one thing Herman's responses were not quite what they should be—not so much on the negative side as on the positive. After Harrigan had gone he eyed Herman for some time in profound perturbation. If Maugham had to put his finger on the trouble he would be compelled to say that Herman was becoming somewhat too human for his own good.
His own attitude toward Herman was considerably more that of one man to another than of inventor to invention. It was not, thought Maugham, a good thing—it meant that Herman was in the process of becoming no longer just an invention but an obsession. Herman, meanwhile, stood immobile, waiting upon his command.
"Herman, go to the laboratory," said Maugham, enunciating each syllable with the clarity necessary to the precision machinery which was Herman's ear.
Was there hesitation in Herman's obedience? Maugham could not be sure and this very uncertainty troubled him all the more. But once moving Herman went forward with his customary smoothness, marching straight down to the laboratory and waiting there for Maugham, in whose breast pride was once more swelling at this concrete evidence of his inventive ingenuity. He recognized that Herman was indeed almost as perfect a machine as it was possible for man to conceive and bring into being.
He had some question now as to whether he could improve on Herman or not. Or whether indeed it would be wise. But his ambition overcame his qualms and, marshalling Herman, he went to work.
"The next time I ran into Maugham, I saw a badly jangled man," said Harrigan. "For one thing he looked as harassed as any man who was ever nagged by his ball-and-chain. For another he found it seemingly impossible to talk freely.
"'You're not looking so well,' I said to him.
"'No,' he agreed. 'I've been working.'
"'On Herman?'
"'I've worked on him enough,' he said ominously.
"I confess I wasn't particularly observant that morning. I knew something was bothering him but I knew too, as if by instinct, that he wasn't saying anything about it. I couldn't resist having a little fun with him.
"'Look,' I said, 'if you scientists get around to inventing life would it be necessary to rewrite the Bible?'
"He blinked at me, a little startled. 'Why, no,' he said, 'we're not in conflict with the Bible. It's organized religion that's in conflict with us.'
"'And the creation of life has nothing to do with it? I always thought that all conflicts and arguments came back to that basic point. Who was responsible—a Supreme Being or a process of evolution from dead matter?'
"'Listen,' he said, 'why are you asking me all this?'
"I noticed then how extremely nervous he was. He had taken hold of my arm and I could feel his hand trembling.
"'I'd like to know,' I answered, 'but it's not that important. Forget it. I'm a little dubious about the scientists anyway. Whether you worship Science or God sometimes gets to seem like six of one and a half-
dozen of the other Or do you think it's possible to create life, Maugham?'
"'I wonder,' he said. And nothing else.
"All this time we had been walking along toward his place. I noticed that his steps began to lag a trifle and the closer we got to his home the slower he walked. I gathered finally that for some reason he was reluctant about my coming but was much too courteous to say so.
"'As long as we're so close to your place,' I said at last, 'I might as well stop in and take another look at Herman.'
"He stopped short at that and showed his distress pretty plainly. A newspaperman has to be impervious to most emotion and I guess I was. I didn't bat an eyelash and let on I never saw a thing.
"'I don't know in what shape the house is in,' he said then. 'I've forgotten just what I set Herman to doing.'
"'Well, we'll see,' I said.
"We went in. Maugham led the way, jittery as a confirmed tosspot too long gone without a drink."
"Which reminds me," I put in. "Will you have another, Harrigan?"
"Sure. But find something stronger," he said. "Well, we went in, as I said. I don't know what I had expected to see but there was nothing unusual about the place. It was spic and span. You'd think he'd had a housemaid working on it all day. And as for Herman—he was sitting in the living room in an easy chair that was clearly enough Maugham's own favorite.
"Maugham stared at his creation, as if he hadn't expected to see him there. 'Herman,' he said, 'go to the laboratory.'
"The robot got up without a sound—I had expected to hear creaks, the meshing of gears or something—and walked out of the room. Maugham sat down. I could see that he was sweating but he seemed relieved about something.
"'He looks perfected,' I said.
"'He's a very serviceable robot,' Maugham agreed. 'He certainly did himself proud on this room.'
"'You mean he cleaned it?' I asked.
"'Every foot of it,' he answered. 'I gave him his orders before I left the house.'
"'But I thought you didn't know what you'd find, what you'd set him to doing?'
"'Oh, I knew, all right. What I didn't know was what Herman might get to do. He's not quite perfect yet, you see, Mr. Harrigan.'
"I saw, all right. I saw that Herman had become his inventor's obsession in a very real sense. I felt sorry for him but I had known enough inventors to understand what had happened. They work so much alone they're apt to over-emphasize the importance of their work. The same thing holds true for authors and composers, I suppose. They lose perspective—it's little more than that.
"And my friend Maugham seemed to have lost his."
Maugham was relieved at Harrigan's going. He sat for a few moments after the door had closed behind the reporter. But in a moment his relief gave way before an attitude of listening. Was there movement? Did he hear shuffling footsteps? Or was it again his imagination?
He walked across to the door through which Herman had disappeared. There he stood for a moment more, listening. He was undeniably nervous. He wondered whether Harrigan had seen or not. In final analysis perhaps it made no difference. He opened the door.
Herman stood there, immobile. For a ludicrous moment Maugham thought that his robot had been listening at the door even as he himself had been. But of course that was impossible. If only he could remember what he had done to Herman the last time he had worked
on the complicated and delicate mechanism of the robot! He was convinced that something had happened, something which had given Herman considerably more animation than had been either planned or foreseen.
There was of course one solution, though he hesitated to resort to it since it involved undoing everything he had done. He could take Herman apart again and find out just how he functioned so well. He would have been ashamed to confess to Harrigan or anyone else that he was candidly perplexed at Herman's abilities.
He stepped across the threshold, brushing past the motionless robot, and turned at the door to the laboratory stairs. "Come, Herman," he said.
The robot did not move.
"Herman, go to the laboratory," said Maugham in a firm clear voice. Still no move.
He remembered abruptly that he had given Herman this order before when Harrigan was still in the house. Apparently then Herman had not obeyed the order at that time. Something was wrong with the auditory mechanism.
He came back to the robot's side and tried once more. Herman's mechanical arms came up, his fingers opened and closed on Maugham's arm. He held him immobile.
"Stop!" commanded Maugham angrily.
Herman held on.
"Put me down," said Maugham.
Herman released him. His arms once again fell laxly to his sides. He stood there, unblinking, apparently waiting upon his next command. "Go to the laboratory," said Maugham again.
Slowly, almost imperceptibly at first, the robot's head turned and shook his refusal.
Maugham stared, aghast. He was at a loss for word or deed.
"I never saw Maugham around again after that," continued Harrigan. "He virtually went into seclusion and no one saw him at his old haunts. Not that he'd been in the habit of moving around a good deal —he hadn't. But now, abruptly, he appeared to give up all his customary walks and visits and to retire into his house.
"You get used to situations like that involving inventive or creative people of course. You think nothing of it. I didn't, I know, though I was possessed of some curiosity about Herman. But out in his neighborhood, where people knew nothing about Herman, certain rumors began to circulate—that Maugham had hired an assistant, and that the assistant now did all Maugham's errands for him. And so on....
"I happened on a description of his assistant one afternoon and it sounded pretty much like Herman. I was amused at the way in which people can get things balled up. They do, you know. Take any court, any trial—the so-called 'circumstantial evidence,' correctly interpreted, is the most effectively damning. Eyewitness accounts vary as much as the weather and are as unreliable actually.
"So that too passed over me.
"I think it was about two months after I had last seen Maugham that I learned of his plans to move west. It was entirely an accident. I happened to be in the circulation department one morning when the circulation manager of the paper got a letter from Maugham asking him to change his address.
"'You know that fellow Maugham, don't you, Harrigan?' asked Howells.
"'Sure,' I said. 'What's he been up to now?'
"'Don't know. He's moving away.'
"He gave me the change of address as of the first of the coming month. I looked at his crisp letter and saw that Maugham was planning to pull up stakes for the west. It had the look of pretty
isolated country in Nevada. It was only a week until the first and I thought that if I had time I'd look in on Maugham before he went.
"So next morning, being in the neighborhood, I went out of my way a little to call on him. I rang his bell several times before I got an answer. Then it was only the tentative opening of the door on a chain. Maugham's head appeared in the opening.
"'Good morning,' I said. 'How's the inventing business?'
"'You'll have to ask Mr. Maugham,' he said.
"'That's just what I'm doing,' I said.
"'Oh, yes. Well, I'm busy now,' he answered.
"I could see that he was. He was wearing some sort of cap as if to keep his hair dust-free—he was carrying a broom—and he had an apron tied round his middle. Plainly he was getting ready to take his leave. Remembering his agitation at our last meeting I looked for more of the same. But instead there was only a kind of weary apathy. If he was nervous at sight of me he didn't show it. I could see that he didn't intend to let me in if he could help it and this time the chain across the door was an argument I couldn't very well get around.
"'How's Herman?' I asked.
"'I'm fine,' he said in a flat voice.
"'Herman,' I said, 'your robot!'
"'Oh, yes,' he answered. 'Herman's fine. He can do just about everything now.'
"'Well in that case it's up to you to invent a mate for him,' I said.
"He grinned in a sickly way and started to back into the house.
"'Hold on,' I cried. 'What's all this about your going to Nevada?'
"'We're leaving next week,' he said. 'Change of air—change of scene.'
"'Are you taking Herman?' I asked.
"'Certainly. It's for his benefit.'
"'Oh, I see. He's still not quite perfect?'
"He shook his head and echoed, 'Not quite perfect!' in a voice as flat as that of his robot.
"'Are you going to perfect him?' I asked.
"'Would you?' he asked.
"'Sure,' I said. 'I'd make him better and better.'
"'Beyond one point you couldn't go,' he said.
"'And what's that?'
"'You couldn't give him a soul—unless you could slip him your own,' he said.
"This time he did back well into the house. I stuck my foot into the doorway so that he couldn't close the door. At the same time I got a glimpse past him. His front door opened directly into his main room, his living room, and I could see that someone was standing there waiting for him—a tallish fellow with one arm folded across his chest and supporting his elbow, one hand cupping his chin. He seemed impatient but of course I couldn't see that clearly.
"If it hadn't been so absurdly impossible I'd have sworn the fellow was Herman. But of course it was undoubtedly Maugham's new assistant. For once the local gadabouts had the story straight."
"And did he move?" I asked.
"Oh yes. He went on schedule—with his assistant. I don't know what became of Herman in the exodus. Presumably he moved with them because he turned up in Nevada with Maugham. But I saw no sign of
him when I watched Maugham from a distance boarding the train. I suppose Herman could have been taken apart and shipped on ahead. Then he could have been reassembled and set to working again."
"But how do you know Herman went along to Nevada?" I asked, pouring Harrigan yet another drink.
"By one of those ridiculous mistakes the newspapers sometimes make. Maugham hadn't been out west two months before a flash flood tore through the village in which he'd set up housekeeping and inventing. Maugham was one of the victims. The paper nearest there carried a picture of Maugham and his robot, which by that time was public property out there.
"But by one of those odd accidents of the press the names under the pictures had been transposed—under Herman's picture appeared Maugham's name, and under Maugham's Herman's. And to carry the mistake to the epitome of the ludicrous I'm damned if Maugham didn't look exactly like a robot and Herman just like a man!"
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