Accounting Standard Updates

Leases (SSAP No. 22R – Exposure Draft) – What’s the latest?

Hot take reading time: 30 seconds

Article reading time: 2 minutes 45 seconds

Hot Take:

Hot Take

As expected, the NAIC interpretations of ASU–2016-02 rejected the GAAP promulgation in preference to the continued use of the SSAP No. 22 statutory lease guidance (i.e. operating lease treatment).  However, a subdued disclosure requirement in the initial re-write of SSAP No. 22 by the SAPWG would have obligated users to present the calculations of the GAAP right-of-use asset, as well as the corresponding liability. This, in essence, would have required insurance entities to go through the effort of the actual GAAP calculations in order to provide the statutory disclosure amounts. Removal of this disclosure requirement in the final statutory language saved entities a heavy amount of unnecessary calculation effort.

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Status: The Exposure Draft comment period has been extended to November 30, 2018.

Details: Although the language of SSAP No. 22R – Leases have been substantially revised following the issuance of ASU 2016-02 – Leases (Topic 842), the resulting changes to statutory accounting are not significant. The biggest modification to GAAP guidance is that the requirement to treat operating leases as financing leases prescribed by ASC 842-10-25 has been rejected. For statutory accounting purposes, all leases are considered operating leases with lease expense recognized on a straight-line basis over the lease term. Additionally, the requirement to disclose the calculated right-of-use assets and corresponding liabilities (which would have required a major calculation exercise to produce the GAAP disclosure numbers) has been removed. SSAP No. 22 guidance will now agree fully with ASC Topic 842 with the exception of the treatment of operating leases.

View the SAPWG discussion minutes.