because of ‘the interplay between general accounting practice, the requirements of Schedule 9A of the Companies Act 1985 and detailed regulatory requirements (‘the FSA rules’)’, and gives examples. It concludes ‘Except as described above, the SORP does not appear to contain any points of principle that are unacceptable in the context of present accounting practice or to conflict with an accounting standard or the ASB’s plans for a future standard’, leaving the reader unclear whether or not the ASB does accept the SORP’s recommendations which, as noted, largely derive from higher UK legal authority than the ASB itself. One may contrast the ASB’s insistence that the SORP prohibit the continuing incorporation of embedded values under the ‘achieved profits’ method into insurers’ main accounts (where there was no overriding legal requirement for such incorporation) with its (qualified?) acceptance of the SORP’s basis of liability provisioning and other accounting treatments which were required by CA1985 and FSA rules (cf. FRS27, Appendix IV, paras. 4.5-4.8). And now 2005 has arrived, under the EU Regulaton listed insurers will only have to comply with IFRS4. 29
It is against this background of recent, ongoing, rapid, and often confusing major changes that we review the literature of recent years and then provide a commentary on the main conceptual issues that still need to be resolved by the ASB in ‘part (b)’ of its own life assurance project (ASB, 2004b, Appendix IV para. 2.1b) and by the IASB in ‘Phase II’ of its project on accounting for insurance contracts.
As noted in the Introduction, we analyse here the recent accounting standards that have been issued (IASB, 2004a and ASB, 2004a, 2004b): some relevant UK academic accounting research; and recent contributions from the UK actuarial profession and the European insurance industry. A further stage of the paper will analyse distinctive features of other countries’ approaches. As the survey develops up-to-date copies of drafts will be available from http://accfin.lse.ac.uk/staff/macve/ .
3. Accounting standards/projects Our overall review comment: Despite a plethora of, very lengthy, discussion papers and exposure drafts, so little tangible progress has been made since the IASC launched its project in 1997 that the prospects for a timely completion of Phase II of the IASB’s project must still seem remote. The ASB has made some progress in FRS27, but in reality this only ‘tracks’ an initiative (‘realistic balance sheets’) that the FSA was already introducing under Solvency II. In our view the standard setters’ discussions have been largely empty of substance as they have been over concerned with the conceptual niceties of the IASB’s Framework and paid insufficient attention to the evidence of users’ (e.g. analysts’) preferences for, and companies experience of, EV based reporting. These have been revealed to have had their own limitations (which the EEV principles, and the actuaries’ increasing focus on ‘MCEV’ are attempting to overcome). But there is now an increasing danger that the main ‘GAAP’ accounts will be sidelined as largely irrelevant. Moreover the difficulties, both technical and political, highlighted by the insurance project, in conjunction with those relating to ‘financial instruments’, have in turn cast more fundamental doubts on the standard setters’ overall approach to accounting standards and their current conceptual frameworks.
29 Subject to the Memorandum of Understanding reached between the ASB, the ABI and leading life insurers and bancassurers with respect to the implementation of FRS27 (ASB, 2004c).