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Statutory Accounting Principles Working Group
Maintenance Agenda Submission Form
Form A
Issue: ASU 2014-15: Presentation of Financial Statements – Going Concern
Check (applicable entity):
P/C
Life
Health
Modification of existing SSAP
New Issue or SSAP
Description of Issue:
ASU 2014-15: Presentation of Financial Statements – Going Concern, Disclosures of Uncertainties about
an Entity’s Ability to Continue as a Going Concern (ASU 2014-15) was issued in August 2014 to provide
guidance about managements’ responsibility to evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern and to require related disclosures.
The new GAAP guidance in ASU 2014-15 applies to all entities and requires a management evaluation
about whether there are conditions or events, considered in the aggregate, that raise substantial doubt
about an entity’s ability to continue as a going concern within one year after the date the financial
statements are issued. (Or, if applicable, within one year after the date that the financial statements are
available to be issued). The key elements of the guidance include:
1) Management’s evaluation should be based on relevant conditions and events that are known and
reasonably knowable at the date of the financial statements. The guidance is based on whether
there is “substantial doubt” that it is “probable” that the entity will be unable to meet its
obligations as they become due within one year. Evaluations are required in both the annual and
interim financial statements.
2) When management identifies concerns or events that raise substantial doubt about the ability to
continue as a going concern, management should consider whether its plans to mitigate those
relevant conditions will alleviate the substantial doubt. The mitigating effect of management’s
plans should be considered only to the extent that 1) it is probable that the plans will be
effectively implemented, and 2) it is probable that the plans will mitigate the conditions or events
that raise substantial doubt about the ability to continue as a going concern.
3) For doubt that is alleviated by a management plan, disclosure is required of the conditions that
caused substantial doubt, the evaluation of the significance of those conditions in relation to the
entity’s ability to meet obligations, and the management plans that alleviate concerns.
4) For doubt that is not alleviated by management plans, the entity is required to include a statement
in the financial statement notes that there is substantial doubt about the entity’s ability to continue
as a going concern within one year after the date that the financial statements are issued (or
available to be issued). Additionally, the entity must disclose the conditions that caused the doubt,
the evaluation of significance of those conditions in relation to the entity’s ability to meet
obligations, and the management’s plans that are intended to mitigate the conditions.
The GAAP guidance is initially effective for the annual period ending after Dec. 15, 2016, and for annual
and interim reporting periods thereafter. Early application is permitted.
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Existing Authoritative Literature:
Preamble – Objectives of Statutory Financial Reporting
27.
The primary responsibility of each state insurance department is to regulate insurance
companies in accordance with state laws with an emphasis on solvency for the protection
of policyholders. The ultimate objective of solvency regulation is to ensure that
policyholder, contract holder and other legal obligations are met when they come
due and that companies maintain capital and surplus at all times and in such forms
as required by statute to provide an adequate margin of safety. The cornerstone of
solvency measurement is financial reporting. Therefore, the regulator’s ability to
effectively determine relative financial condition using financial statements is of
paramount importance to the protection of policyholders. An accounting model based on
the concepts of conservatism, consistency, and recognition is essential to useful statutory
financial reporting.
SSAP No. 1—Disclosure of Accounting Policies, Risks & Uncertainties, and Other Disclosures
The guidance in SSAP No. 1 adopts the following GAAP guidance:

APB Opinion No. 22, Disclosure of Accounting Policies

ARB No. 43, Restatement and Revision of Accounting Research Bulletins, Chapter 2A
“Comparative Financial Statements”

AICPA Statement of Position No. 94-5, Disclosures of Certain Matters in the Financial
Statements of Insurance Enterprises

AICPA Statement of Position No. 94-6, Disclosures of Certain Significant Risks and
Uncertainties
From the adoption of GAAP guidance, SSAP No. 1 includes disclosures of accounting policies and risks
and uncertainties – including the nature of operations, and use of estimates, certain significant estimates,
and current vulnerabilities due to certain concentrations.
Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC,
FASB, other State Departments of Insurance or other NAIC groups): None
Information or issues (included in Description of Issue) not previously contemplated by the
SAPWG: None
Convergence with International Financial Reporting Standards (IFRS): Existing IFRS and the
amendments in ASU 2014-15 will result with financial statements that emphasize that management is
responsible for evaluating and disclosing uncertainties about an entity’s ability to continue as a going
concern. (Differences exist between the two standards.)
Recommending Party:
Julie Gann – September 23, 2014
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Recommended Conclusion or Future Action on Issue:
Staff recommends that the Working Group move this item to the nonsubstantive active listing and
expose proposed revisions to SSAP No. 1 to adopt ASU 2014-15 and incorporate the requirement
for a reporting entity to evaluate and disclose whether there is substantial doubt on the entity’s
ability to continue as a going concern in the audited financial statements. This recommendation
proposes to incorporate the GAAP disclosures on whether management’s plan will alleviate or mitigate
the substantial doubt, and a statement (if applicable) that there is substantial doubt about the entity’s
ability to continue as a going concern. The proposed revisions to SSAP No. 1 are drafted with a Dec. 31,
2016 effective date to mirror the GAAP effective date, with early application permitted.
In addition to the proposed revisions to SSAP No. 1, staff is also recommending revisions to SSAPs
in which audited financial statements are utilized (e.g., accounting for investments using the GAAP
equity method) to require that the audited financial statements do not include a management
assessment noting substantial doubt to continue as a going concern. The revisions propose for such
investments to be nonadmitted regardless if a disclosure is included with an assessment that the
management’s plans will mitigate the substantial doubt. As illustrated below, these revisions are proposed
to SSAP No. 48, SSAP No. 68 and SSAP No. 97. These revisions are proposed to be effective upon
adoption.
(Note –The AU sec. 341 requirement for the auditor’s evaluation and the auditor’s reporting when
substantial doubt exists, have not changed and continue to be in effect. Until the PCAOB reviews this
section and incorporates revisions, it is anticipated that auditors will continue to make a separate
evaluation of the need for disclosure in accordance with the requirements of AU sec. 341.)
Proposed Revisions to SSAP No. 1:
3. Refer to the preamble for further discussion of disclosure requirements. The disclosures required
under paragraph 6 concerning changes in accounting policies shall be made for each financial
statement presented. The disclosures required under paragraphs 9, 10, 12, 13, 15 and 16 shall
be included in the annual audited statutory financial reports only.
Risks and Uncertainties
9. Companies shall make disclosures in their financial statements about risks and uncertainties
existing as of the date of those statements in the following areas:
a.
Nature of operations;
b.
Use of estimates in the preparation of financial statements;
c.
Certain significant estimates; and
d.
Current vulnerability due to certain concentrations.
Nature of Operations
10. Financial statements shall include a summary of the ownership and relationships of the reporting
entity and all affiliated companies, and a description of the major products or services the reporting
entity sells or provides and its principal markets, including the locations of those markets. If the entity
operates in more than one business, the disclosure should also indicate the relative importance of its
operations in each business and the basis for the determination (e.g., assets, revenues, or earnings).
Disclosures about the nature of operations need not be quantified; relative importance could be
conveyed by use of terms such as predominately, about equally, or major.
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Use of Estimates in the Preparation of Financial Statements
11. Financial statements shall include an explanation that the preparation of financial statements in
conformity with the annual statement instructions and the Accounting Practices and Procedures
Manual requires the use of management’s estimates.
Certain Significant Estimates
12. Disclosure regarding an estimate shall be made when known information available prior to
issuance of the financial statements indicates that both of the following criteria are met:
a.
It is at least reasonably possible that the estimate of the effect on the financial
statements of a condition, situation, or set of circumstances that existed at the date of
the financial statements will change in the near term due to one or more future
confirming events; and
b.
The effect of the change would be material to the financial statements.
13. The disclosure shall indicate the nature of the uncertainty and include an indication that it is at
least reasonably possible that a change in the estimate will occur in the near term (generally a period
of time not to exceed one year from the date of the financial statements). If the estimate involves a
loss contingency as defined in SSAP No. 5R—Liabilities, Contingencies and Impairments of Assets,
the disclosure shall include an estimate of the possible loss or range of loss, or state that such an
estimate cannot be made. Reporting entities shall disclose the factors that cause the estimate to be
sensitive to change.
Current Vulnerability Due to Certain Concentrations
14. Vulnerability from concentrations arises because an entity is exposed to risk of loss greater than it
would have had it mitigated its risk through diversification. Such risks manifest themselves differently,
depending on the nature of the concentration, and vary in significance.
15. Financial statements shall disclose the concentrations described in paragraph 16 of this
statement if, based on information known to management prior to issuance of the financial
statements, all of the following criteria are met:
a.
The concentration exists at the date of the financial statements;
b.
The concentration makes the enterprise vulnerable to the risk of a near-term severe
(more than material but less than catastrophic) impact; and
c.
It is at least reasonably possible that the events that could cause the severe impact
will occur in the near term.
16. Concentrations, including known group concentrations, described below require disclosure if they
meet the criteria of paragraph 15 of this statement. (Group concentrations exist if a number of
counterparties or items that have similar economic characteristics collectively expose the reporting
entity to a particular kind of risk.) Some concentrations may fall into more than one category:
a.
Concentrations in the volume of business transacted with a particular customer,
supplier, or lender. The potential for the severe impact can result, for example, from
total or partial loss of the business relationship. For the purposes of this statement, it
is always considered at least reasonably possible that any customer will be lost in the
near term;
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b.
Concentrations in revenue from particular products or services. The potential for
severe impact can result, for example, from volume or price changes for a particular
source of revenue;
c.
Concentrations in the available sources of labor, services, licenses, or other rights
used in the entity’s operations;
d.
Concentrations in the market or geographic area in which an entity conducts its
operations. The potential for severe impact can result, for example, from negative
effects of the economic and political forces within the market or geographic area. For
the purposes of this statement, it is always considered at least reasonably possible
that operations located outside an entity’s home country will be disrupted in the near
term.
Going Concern
17. Management for each reporting entity shall evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern. Such substantial doubt is determined when relevant
conditions and events, considered in the aggregate, indicate that it is probable that an entity will be
unable to meets its obligations as they become due within one year after the date that the financial
statements are issued. This initial evaluation shall not take into consideration the potential mitigating
effect of management’s plans that have not been fully implemented as of that date.
18. Pursuant to paragraph 17, when relevant conditions or events have raised substantial doubt of
the reporting entity’s ability to continue as a going concern, management for the reporting entity shall
evaluate whether its plans to mitigate those concerns and events, when implemented, will alleviate
the substantial doubt about the entity’s ability to continue as a going concern. The mitigating effect of
management’s plans shall be considered in evaluating whether the substantial doubt is alleviated only
to the extent that information available as of the date that the financial statements are issued
indicates both of the following:
a. It is probable that management’s plans will be effectively implemented within one year
after the date that the financial statements are issued.
b. It is probable that management’s plans, when implemented, will mitigate the relevant
conditions or events that raise substantial doubt about the entity’s ability to continue as a
going concern within one year after the date that the financial statements are issued.
19. If after considering management’s plans, substantial doubt about an entity’s ability to continue as
a going concern is alleviated, the reporting entity shall disclose in the notes to the financial
statements the following information:
a. Principal conditions and events that raised substantial doubt about the entity’s ability to
continue as a going concern (before consideration of management’s plans).
b. Management’s evaluation of the significance of those conditions or events in relation to
the entity’s ability to meet its obligations.
c.
Management’s plans that alleviated substantial doubt about the entity’s ability to continue
as a going concern.
20. If after considering management’s plans, substantial doubt about an entity’s ability to continue as
a going concern is not alleviated, the entity shall include a statement in the notes to the financial
statements indicating that there is substantial doubt about the entity’s ability to continue as a going
concern within one year after the date that the financial statements are issued. Additionally, the
reporting entity shall disclose the information in paragraphs 19a and 19b, as well as the management
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plans that are intended to mitigate the conditions or events that raise substantial doubt about the
entity’s ability to continue as a going concern.
21. The going concern evaluation and going concern disclosures discussed in paragraphs 17-19 are
required for both interim and annual financial statements. If substantial doubt was determined, and
the conditions or events continue to raise substantial doubt about an entity’s ability to continue as a
going concern in subsequent annual or interim reporting periods, the entity shall continue to provide
the disclosures in each subsequent reporting period. In these subsequent periods the disclosures
should become more extensive as additional information becomes available about the relevant
conditions or events and about management’s plans. The entity shall provide appropriate context and
continuity in explaining how conditions or events have changed between reporting periods.
22. For the period in which substantial doubt no longer exists (before or after consideration of
management plans), an entity shall disclose how the relevant conditions or events that raised
substantial doubt were resolved.
Relevant Literature
31. This statement adopts Accounting Principles Board Opinion No. 22, Disclosure of Accounting
Policies, Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research
Bulletins, Chapter 2A, “Comparative Financial Statements,” AICPA Statement of Position No. 94-5,
Disclosures of Certain Matters in the Financial Statements of Insurance Enterprises, and AICPA
Statement of Position No. 94-6, Disclosures of Certain Significant Risks and Uncertainties. The disclosure
of certain accounting policies within specific notes to the Annual Statement is required by the Annual
Statement Instructions. This statement also adopts ASU 2014-15, Presentation of Financial Statements –
Going Concern, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
Effective Date and Transition
32. This statement is effective for years beginning January 1, 2001. A change resulting from the adoption
of this statement shall be accounted for as a change in accounting principle in accordance with SSAP
No. 3—Accounting Changes and Corrections of Errors. The guidance in paragraphs 19-22, requiring
evaluation and disclosure of substantial doubt about an entity’s ability to continue as a going concern is
effective Dec. 31, 2016, and is required for interim and annual reporting periods thereafter. Early
application is permitted.
Proposed Revisions to SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies
(Note: The current paragraph 8 in SSAP No. 48 is long with a hanging paragraph at the end. The
revisions reflected to paragraph 8 below reflect new guidance for nonadmittance based on substantial
doubt. The other revisions simply divide the prior paragraph (dividing the original guidance into three
separate paragraphs) in an attempt to make it more readable. Guidance which is proposed to only be
moved (and is not revised) is shaded.
8.
Joint ventures, partnerships and limited liability companies in which the entity has a minor
ownership interest (i.e., less than 10%) or lacks control as stipulated in paragraphs 15 and
16, shall be recorded based on the underlying audited U.S. GAAP equity of the investee.
The investment shall be nonadmitted if the audited financial statements include substantial
doubt about the entity’s ability to continue as a going concern. Additionally, the investment
shall be nonadmitted on the basis/contents of the audit opinion as detailed in paragraph 20
of SSAP No. 97.
9.
If audited U.S. GAAP basis financial statements of the investee are not available, joint
ventures, partnerships, and limited liability companies in which the entity has a minor
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ownership interest (i.e., less than 10%) or lacks control as stipulated in paragraphs 13 and
14 may be recorded based on either of the valuation methodologies allowed under
paragraphs 9.a. or 9.b. If either one of the valuation methodologies allowed under
paragraphs 9.a. or 9.b. is used to value the investment, documentation must be maintained
regarding the reason that audited U.S. GAAP basis financial statements could not be
provided.
a.
b.
Non U.S. joint ventures, partnerships, and limited liability companies in which the
entity has a minor ownership interest of less than 10% and for which audited U.S.
GAAP basis financial statements of the investee are not available, may be recorded
based on:
i.
the U.S. GAAP basis equity as set forth in the audited footnote reconciliation of
the investee's equity and income to U.S. GAAP within the investee’s audited
foreign GAAP prepared financial statements or,
ii.
the IFRS basis equity as set forth in the investee’s audited IFRS financial
statements prepared in compliance, both annually and quarterly, with IFRS as
issued by the International Accounting Standards Board (IASB).
If audited U.S. GAAP basis financial statements of the investee are not available,
joint ventures, partnerships, and limited liability companies in which the entity has a
minor ownership interest of less than 10%, measured at the holding company level,
may be recorded based on the underlying audited U.S. tax basis equity. For
investments recorded based on the underlying audited U.S. tax basis equity, the
reporting entity shall review investments held by the joint venture, partnership or
limited liability company in accordance with the impairment guidance in paragraphs
16 and 17. The reporting entity must first attempt to obtain audited U.S. GAAP basis
financial statements and, if such financial statements are unavailable, must maintain
documentation regarding the reason that audited U.S. GAAP basis financial
statements could not be provided.
10. The amount to be recorded shall be defined as the initial investment in an investee at cost
(as defined in paragraph 3 of SSAP No. 68—Business Combinations and Goodwill) plus
subsequent capital contributions to the investee. The carrying amount of the investment
shall be adjusted for the amortization of the basis difference (difference between the cost
and the underlying GAAP equity), as well as to recognize the reporting entity's share of: (i)
the audited U.S. GAAP basis earnings or losses of the investee after the date of acquisition,
adjusted for any distributions received, or (ii) if audited U.S. GAAP basis financial
statements of the investee are not available, the earnings or losses of the investee after the
date of acquisition, adjusted for any distributions received, based on either one of the
valuation methodologies allowed under paragraphs 9.a. or 9.b. A reporting entity’s share of
adjustments, excluding changes in capital contributions to the investee, that are recorded
directly to the investee’s stockholders’ equity shall also be recorded as adjustments to the
carrying value of the investment with an offsetting amount recorded to unrealized capital
gains and losses on investments.
All other paragraphs will be renumbered accordingly.
Proposed Revisions to SSAP No. 68—Business Combinations and Goodwill
7.
Positive goodwill recorded under the statutory purchase method of accounting shall be
admitted subject to the following limitation: Positive goodwill from all sources, including life,
accident and health, and deposit-type assumption reinsurance, is limited in the aggregate
to 10% of the acquiring entity’s capital and surplus as required to be shown on the statutory
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balance sheet of the reporting entity for its most recently filed statement with the domiciliary
state commissioner adjusted to exclude any net positive goodwill, EDP equipment and
operating system software, and net deferred tax assets. Additionally, all positive goodwill
shall be nonadmitted when the underlying investment in the SCA or partnership, joint
venture and limited liability company is nonadmitted1. When negative goodwill exists, it
shall be recorded as a contra-asset. Positive or negative goodwill resulting from the
purchase of an SCA, joint venture, partnership or limited liability company shall be
amortized to unrealized capital gains and losses on investments over the period in which
the acquiring entity benefits economically, not to exceed 10 years. Positive or negative
goodwill resulting from life, accident and health, and deposit-type assumption reinsurance
shall be amortized to operations as a component of general insurance expenses over the
period in which the assuming entity benefits economically, not to exceed 10 years. Goodwill
shall be evaluated separately for each transaction.(INT 01-18)
New Footnote 1: This includes, but is not limited to, situations in which the investment is
nonadmitted as the audited financial statements for the SCA, joint venture, partnership or
limited liability company includes substantial doubt on the entity’s ability to continue as a
going concern, or on the basis/contents of the audit opinion pursuant to paragraph 20 of
SSAP No. 97.
Proposed Revisions to SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities
Applying the Market Valuation, Audited Statutory Equity and Audited GAAP Equity Methods
8.
The admitted investments in SCA entities shall be valued using either the market valuation
approach (as described in paragraph 8.a.), or one of the equity methods (as described in paragraph 8.b.).
(For ease of review, paragraph 8.a. has not been provided below.)
b.
If a SCA investment does not meet the requirements for the market valuation approach in
paragraph 8.a. or, if the requirements are met, but a reporting entity elects not to use that
approach, the reporting entity’s proportionate share of its investments in SCAs shall be
recorded as follows:
i.
Investments in U.S. insurance SCA entities shall be recorded based on the
underlying audited statutory equity of the respective entity’s financial statements,
adjusted for any unamortized goodwill as provided for in SSAP No. 68—Business
Combinations and Goodwill (SSAP No. 68). Reporting entities shall record
investments in U.S. insurance SCA entities on at least a quarterly basis, and
shall base the investment value on the most recent quarterly information
available from the SCA. Entities may recognize their investment in U.S.
insurance SCA entities based on the unaudited statutory equity in the SCAs
year-end Annual Statement if the annual SCA audited financial statements are
not complete as of the filing deadline. The recorded statutory equity shall be
adjusted for audit adjustments, if any, as soon as the annual audited financial
statements have been completed. Annual consolidated or combined audits are
allowed if completed in accordance with the Model Regulation Requiring Annual
Audited Financial Reports as adopted by the SCA’s domiciliary state;
ii.
Investments in both U.S. and foreign noninsurance SCA entities that are
engaged in the following transactions or activities:
(a)
Collection of balances as described in SSAP No. 6—Uncollected
Premium Balances, Bills Receivable for Premiums, and Amounts Due
From Agents and Brokers
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(b)
Sale/lease or rental of EDP Equipment and Software as described in
SSAP No. 16R—Electronic Data Processing Equipment and Accounting
for Software
(c)
Sale/lease or rental of furniture, fixtures, equipment or leasehold
improvements as described in SSAP No. 19—Furniture, Fixtures and
Equipment; Leasehold Improvements Paid by the Reporting Entity as
Lessee; Depreciation of Property and Amortization of Leasehold
Improvements
(d)
Loans to employees, agents, brokers, representatives of the reporting
entity or SCA as described in SSAP No. 20—Nonadmitted Assets
(e)
Sale/lease or rental of automobiles, airplanes and other vehicles as
described in SSAP No. 20—Nonadmitted Assets
(f)
Providing insurance services on behalf of the reporting entity including
but not limited to accounting, actuarial, auditing, data processing,
underwriting, collection of premiums, payment of claims and benefits,
policyowner services
(g)
Acting as an insurance or administrative agent or an agent for a
government instrumentality performing an insurance function (e.g.
processing of state workers compensations plans, managing assigned
risk plans, Medicaid processing etc).
(h)
Purchase or securitization of acquisition costs
and if 20% or more of the SCA’s revenue is generated from the reporting entity
and its affiliates, then the underlying equity of the respective entity’s audited U.S.
Generally Accepted Accounting Principles (GAAP) financial statements shall be
adjusted to a statutory basis of accounting in accordance with paragraph 9. For
purposes of this section, revenue means GAAP revenue reported in the audited
U.S. GAAP financial statements excluding realized and unrealized capital
gains/losses. Foreign SCA entities are defined as those entities incorporated or
otherwise legally formed under the laws of a foreign country. Paragraphs 21-26
provide guidance for investments in holding companies;
iii.
Investments in both U.S. and foreign noninsurance SCA entities that do not
qualify under paragraph 8.b.ii., shall be recorded based on the audited U.S.
GAAP equity of the investee. Foreign SCA entities are defined as those entities
incorporated or otherwise legally formed under the laws of a foreign country.
Additional guidance on investments in downstream holding companies is
included in paragraphs 21-26. Additional guidance on the use of audited foreign
GAAP basis financial statements for the U.S. GAAP equity valuation amount is
included in paragraph 22.b.
iv.
Investments in foreign insurance SCA entities shall be recorded based on the
underlying U.S. GAAP equity from the audited U.S. GAAP basis financial
statements, if available, or the audited foreign statutory basis financial
statements of the respective entity adjusted to a statutory basis of accounting in
accordance with paragraph 9 and adjusted for reserves of the foreign insurance
SCA with respect to the business it assumes directly and indirectly from a U.S.
insurer using the statutory accounting principles promulgated by the NAIC in the
Accounting Practices and Procedures Manual. The audited foreign statutory
basis financial statements must include an audited footnote that reconciles net
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income and equity on the foreign statutory basis of accounting to the U.S. GAAP
basis. Foreign insurance SCA entities are defined as alien insurers formed
according to the legal requirements of a foreign country.
c.
The following provides guidance regarding the audits for entities covered under
paragraph 8.b.:
i.
The investment in the SCA shall be nonadmitted if the audited financial
statements include substantial doubt about the entity’s ability to continue as a
going concern. Additionally, the investment shall be nonadmitted on the
basis/contents of the audit opinion as detailed in paragraph 20.
ii.
The recorded GAAP equity shall be adjusted for any audit adjustments resulting
from either the annual audited GAAP financial statements of the respective entity
or, if the entity is a member of a consolidated or combined group of insurers, the
annual audited GAAP financial statements of the consolidated or combined
group of companies, as soon as determined. GAAP is defined as those
pronouncements included in the FASB codification.
iii.
Annual consolidated or combined audits are allowed for the valuation of U.S.
insurance entities if completed in accordance with the Model Regulation
Requiring Annual Audited Reports as adopted by the SCA’s domiciliary state.
iv.
Consolidated or combined financial statements are allowed for the valuation of
downstream SCA entities, including downstream SCA entities, that directly or
indirectly own U.S. insurance entities, provided that the statutory financial
statements of such U.S. insurance entities are audited. The audited financial
statements of the downstream SCA entities shall include, as other financial
information, consolidating or combining balance sheet schedule(s) showing the
equity of all relevant SCA entities, non SCA SSAP No. 48 entities, and any
required intercompany eliminations. The consolidating or combining balance
sheet of the downstream SCA entities shall then be adjusted for GAAP to SAP
differences of the insurance entities and paragraph 8.b.ii. and 8.b.iv. entities
owned directly and indirectly by the downstream SCA entities.
v.
Investments in foreign SCA entities shall follow the guidance in paragraphs
8.b.ii., 8.b.iii. and 8.b.iv. based upon the nature of the SCA as described in the
respective paragraphs. To fulfill the requirement for audited U.S. GAAP basis
financial statements, the value of foreign SCA investments may be based on the
GAAP equity from audited financial statements prepared on a foreign GAAP
basis. The audited foreign GAAP basis financial statements must include an
audited footnote that reconciles net income and equity on the foreign GAAP
basis of accounting to the U.S. GAAP basis. The statutory carrying value of
foreign insurance SCA entities (i.e., 8.b.iv. entities) and foreign noninsurance
8.b.ii. SCA entities shall include the additional adjustments as described in
paragraph 9.
Qualified Versus Unqualified Opinions
20. Various opinions can be issued in which an entity can record certain investments under the
GAAP Equity method of accounting. The reporting entity shall record investments that require
audited GAAP equity in the manner described below when the audit opinion on the GAAP
financial statements contains the following language:
a.
The investment shall be nonadmitted if the audit opinion contains a disclaimer of opinion
for the most recent statement of financial position presented in the financial statements.
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b.
The investment shall be nonadmitted if the audit opinion contains a qualified opinion due
to a scope limitation that impacts the most recent statement of financial position
presented in the financial statements and the impact of the scope limitation cannot be
quantified. However, if the impact of the scope limitation is quantified in the audited
financial statements or the audit opinion, the investment shall be admitted and the
reporting entity’s valuation of the investment shall be determined based on the GAAP
equity of the investee, adjusted to exclude the impact of the quantified scope limitation.
c.
The investment shall be nonadmitted if the audit opinion contains a qualified opinion due
to a departure from GAAP that impacts the most recent statement of financial position
presented in the financial statements and the impact of such departure is not quantified in
either the auditor’s report or the footnotes to the financial statements (see quantification
exception related to the valuation of a U.S. insurance entity on the basis of U.S. statutory
accounting principles discussed below). However, if the impact of the departure from
GAAP is quantified in the audited financial statements or the audit opinion, the
investment shall be admitted and the reporting entity’s valuation of the investment shall
be determined based on the GAAP equity of the investee, adjusted to exclude the impact
of the quantified departure from GAAP. EXCEPTION: There is no need to quantify the
impact of a departure from GAAP in either the auditor’s report or the footnotes to the
financial statements if a qualified audit opinion is issued due to a departure from GAAP
and the departure is related to the valuation of an U.S. insurance entity on the basis of
U.S. statutory accounting principles. In such cases, the investment shall be admitted
without quantifying the departure.
d.
The investment shall be nonadmitted if the audit opinion contains an adverse opinion due
to a departure from GAAP that impacts the most recent statement of financial position
presented in the financial statements and the impact of such departure is not quantified in
either the auditor’s report or the footnotes to the financial statements (see quantification
exception related to the valuation of a U.S. insurance entity on the basis of U.S. statutory
accounting principles discussed below). However, if the impact of the departure from
GAAP is quantified in the audited financial statements or the audit opinion, the
investment shall be admitted and the reporting entity’s valuation of the investment shall
be determined based on the GAAP equity of the investee, adjusted to exclude the impact
of the quantified departure from GAAP. EXCEPTION: There is no need to quantify the
impact of a departure from GAAP in either the auditor’s report or the footnotes to the
financial statements if an adverse audit opinion is issued due to a departure from GAAP
and the departure is related to the valuation of an U.S. insurance entity on the basis of
U.S. statutory accounting principles. In such cases, the investment shall be admitted
without quantifying the departure.
e.
The investment shall be nonadmitted if the audit opinion contains explanatory language
indicating that there is substantial doubt about the investee’s ability to continue as a
going concern.
Status:
On November 16, 2014, the Statutory Accounting Principles (E) Working Group moved this item to the
nonsubstantive active listing and exposed nonsubstantive revisions to adopt ASU 2014-15: Presentation
of Financial Statements – Going Concern in SSAP No. 1 and incorporate disclosure requirements for a
reporting entity to evaluate and disclose whether there is substantial doubt on the entity’s ability to
continue as a going concern. In addition, changes to SSAP Nos. 48, 68, and 97 were exposed that would
nonadmit investments whose audited financial statements include going concern notes from management.
All proposed revisions are illustrated above.
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