Accounting Standards for Private Sector Not-for-Profit Organizations

Insurance Contracts with Cash Surrender Value

Summary

The Accounting Standards Board (AcSB) has undertaken a project to provide guidance on the recognition and measurement of the cash surrender value of an insurance contract.

Currently, Accounting Standards for Private Enterprises and Accounting Standards for Not-for-Profit Organizations in Parts II and III, respectively, of the CPA Canada Handbook – Accounting, do not address accounting for cash surrender value of an insurance contract. Stakeholders have informed the AcSB that there is diversity in the accounting for the cash surrender value of an insurance contract.

In November 2023 the AcSB issued the Exposure Draft, “Accounting for Life Insurance Contracts with Cash Surrender Value,” which closed for comment on January 31, 2024.

The project will involve:

developing recognition and measurement guidance for the cash surrender asset;
determining presentation requirements for change in cash surrender value and insurance policy payments; and
identifying disclosure requirements that will ensure adequate information is available to users.

Staff Contact(s)

Mark Squire, CPA, CA Principal, Accounting Standards Board

+1 647 264 3810

[email protected]

Project Status

Information gathering

The AcSB conducted research and developed proposals to address issues with accounting for cash surrender value of an insurance contract
Approving project

In April 2023, the AcSB approved a project to develop an exposure draft

The AcSB developed proposals to address accounting issues for insurance contracts that contain a cash surrender value from the policy owner’s point of view
Consulting stakeholders

The AcSB issued its Exposure Draft, “Accounting for Life Insurance Contracts with Cash Surrender Value” in November 2023
Deliberating feedback

The AcSB is currently deliberating feedback on the Exposure Draft

View Comments
Final pronouncement

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Meetings

February 2, 2023

Private Enterprise Advisory Committee Notes – February 2, 2023

The Private Enterprise Advisory Committee received an update on the AcSB’s recent discussions and tentative decisions related to a project proposal to address accounting issues for insurance contracts with cash surrender value.

The Committee discussed accounting treatment and presentation options for the cash surrender value and classification of change in cash surrender value and policy premiums. The Committee also discussed the disclosures that would provide sufficient decision useful information. Also, the Committee provided feedback on potential solutions to provide guidance on accounting for insurance contracts with cash surrender value.

The AcSB will consider the feedback from its Private Enterprise Advisory Committee and its Not-for-Profit Advisory Committee at the April 2023 Board meeting.

January 31, 2023

Not-for-Profit Advisory Committee Notes – January 31, 2023

The Not-for-Profit Advisory Committee received an update on the AcSB’s recent tentative decisions on the development of a project to address accounting issues for insurance contracts with a cash surrender value. The Committee discussed alternative accounting treatments, presentation options, and potential disclosure requirements for insurance contracts with a cash surrender value. The Committee also provided feedback on accounting for contributions of insurance contracts with a cash surrender value and payment of policy premiums.

The AcSB will consider the feedback from its Not-for-Profit Advisory Committee and its Private Enterprise Advisory Committee at its April 2023 meeting.

December 15, 2022

AcSB Decision Summary – December 14-15, 2022

The AcSB discussed the research on accounting for insurance contracts with cash surrender value. Currently, Part II and Part III of the CPA Canada Handbook – Accounting do not specifically address the accounting for the cash surrender value of an insurance contract.

The AcSB discussed feedback from the Private Enterprise Advisory Committee and the Not-for-Profit Advisory Committee that there is diversity in practice for both the initial and ongoing recognition, presentation, and measurement of the cash surrender value in an insurance contract and accounting for the premiums paid.

Based on the feedback, the Board tentatively decided that the cash surrender value of an insurance contract is an asset that should be recognized at the cash surrender amount. The Board also discussed presentation options for insurance premiums and the change in cash surrender value.

The AcSB directed staff to prepare a project proposal for consideration at its March 2023 meeting.

November 10, 2022

Private Enterprise Advisory Committee Notes – November 10, 2022

The Private Enterprise Advisory Committee discussed alternative accounting treatments and presentation options for insurance contracts with cash surrender value. Committee members agreed that the cash surrender value meets the definition of an asset and thought the asset should be recognized in the financial statements at the cash surrender amount. The Committee provided feedback to the AcSB on presentation options for premium payments and the annual change in cash surrender value. In addition, the Committee discussed disclosure options.

The AcSB will consider the feedback from its Private Enterprise Advisory Committee and its Not-for-Profit Advisory Committee at the December 2022 Board meeting.

October 4, 2022

Not-for-Profit Advisory Committee Meeting Notes – October 4, 2022

The Not-for-Profit Advisory Committee discussed accounting for insurance contracts with cash surrender value given that specific guidance is not provided in Part II of the CPA Canada Handbook – Accounting.

Some Committee members indicated that it is uncommon for not-for-profit organizations to receive contributions of insurance contracts with cash surrender value and that cash surrender value amounts are often not material. They noted that NFPOs may not recognize contributed insurance contracts with a cash surrender value.

The Committee discussed the presentation in the income statement and considered whether the change in cash surrender value should be presented separately from insurance premiums. The Committee also discussed whether contributed premiums should be recognized as contributions revenue.

Some Committee members noted that there is diversity in practice for accounting for insurance contracts and that providing guidance would benefit preparers and users.

The AcSB will consider feedback from the Not-for-Profit Advisory Committee and the Private Enterprise Advisory Committee at the Board meeting in December 2022.

September 22, 2022

Private Enterprise Advisory Committee Notes – September 22, 2022

The Private Enterprise Advisory Committee discussed accounting for insurance contracts with cash surrender value given that specific guidance is not provided in Part II of the Handbook.

Some Committee members observed that insurance contracts with cash surrender value are common in practice and that cash surrender value amounts can be material. Other Committee members noted that some enterprises use whole or permanent insurance policies as an investment vehicle while other enterprises may use less-expensive term insurance to satisfy lending requirements.

The Committee discussed the presentation in the income statement and considered how the insurance premiums including the change in cash surrender value should be shown. The Committee also discussed the appropriate classification in the statement of cash flows.

A few Committee members commented that there is diversity in practice for accounting for insurance contracts and that providing guidance would benefit preparers and users.

The AcSB will consider the Committee’s feedback as well as feedback from its Not-for-Profit Advisory Committee at the Board meeting in December 2022.

Disclaimer

This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal voting process.