Statutory Accounting Principles Working Group s10

Ref #2015-40

Statutory Accounting Principles (E) Working Group

Maintenance Agenda Submission Form

Form A

Issue: ASU 2015-15: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements

Check (applicable entity):

P/C Life Health

Modification of existing SSAP

New Issue or SSAP

Description of Issue:

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2015-03: Simplifying the Presentation of Debt Issuance Costs, which requires entities to present debt issuance costs related to a recognized liability as a direct deduction from the carrying amount of that debt liability. It was identified that the guidance in ASU 2015-03 did not address the presentation or subsequent measurement of debt issuance cost related to line-of-credit arrangements. As a result, in August 2015, the FASB issued ASU 2015-15 – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. This ASU adds Securities Exchange Commission (SEC) paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force (EITF) meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements.

On October 19, 2015, the Working Group adopted nonsubstantive revisions to SSAP No. 15—Debt and Holding Company Obligations to reject ASU 2015-03-Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03) for statutory accounting and maintain the current accounting treatment as outlined in SSAP No. 15 (charged to operations in the period incurred) in agenda item 2015-10.. . Therefore, consistent with the recommendation in agenda item 2015-10 this agenda item proposes revisions to SSAP No. 15 to reject ASU 2015-15 for statutory accounting.

Existing Authoritative Literature:

SSAP No. 15— Debt and Holding Company Obligations

3. Debt discount or premium, if any, shall be reported in the balance sheet as a direct deduction from or addition to the face amount of the note. Discount or premium shall be amortized over the life of the note using the interest method.

5. Debt issuance costs (e.g., loan fees and legal fees) do not meet the definition of an asset as defined in SSAP No.4—Assets and Nonadmitted Assets. Accordingly, these costs shall be charged to operations in the period incurred.

This statement adopts Accounting Principles Board Opinion No.21, Interest on Receivables and Payables, with a modification to require that debt issuance costs be charged to operations.

SSAP No. 15 adopts and rejects various AICPA, APB and FASB literature, but for purposes of review of ASU 2015-03, the applicable guidance is documented within APB 21 as outlined above.

Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC, FASB, other State Departments of Insurance or other NAIC groups): The measurement and presentation of debt issuance cost in a related ASU (2015-03) was exposed for rejection by the Working Group at the 2015 Summer National Meeting, as outlined in agenda item 2015-10.

Information or issues (included in Description of Issue) not previously contemplated by the SAPWG: None

Recommendation:

Staff recommends that the Working Group move this item to the nonsubstantive active listing and expose nonsubstantive revisions to SSAP No. 15 to reject ASU 2015-15: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements for statutory accounting and maintain the current accounting treatment for debt issuance cost as outlined in SSAP No. 15. Pursuant to this guidance, debt issuance cost shall be charged to operations in the period incurred. This guidance is suggested to be retained as debt issuance costs do not meet the definition of an asset as defined in SSAP No. 4—Assets and Nonadmitted Assets and do not represent amounts available to policyholders.

Proposed Revisions to SSAP No. 15

SSAP No. 15— Debt and Holding Company Obligations

(New paragraph under Relevant Literature, all remaining paragraphs & references will be updated)

29. This statement rejects ASU 2015-03: Simplifying the Presentation of Debt Issuance Cost as statutory accounting and ASU 2015-15: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements for statutory accounting.

Note: The shaded section represents the language proposed in agenda item 2015-10.

Staff Review Completed by:

Josh Arpin – August 2015

Status:

On November 19, 2015, the Statutory Accounting Principles (E) Working Group moved this item to the nonsubstantive active listing and exposed nonsubstantive revisions to SSAP No. 15, as illustrated above, to reject ASU 2015-15 for statutory accounting and maintain the current accounting treatment for debt issuance costs.

G:\DATA\Stat Acctg\3. National Meetings\A. National Meeting Materials\2015\Fall\NM Exposures\15-40 - ASU 2015-15 - Debt Issusance Costs Associated with LOC Arrangements.docx