The proposal, Accounting For Financial Guarantee Insurance Contracts an Interpretation of FASB Statement No. 60, reduces diversity in practice and provides financial statement users with clearer, more comparable information and expanded disclosures.

The proposal has been written in a new format intended to improve its understandability, including the use of bold text at the beginning of each section to convey the accounting principle for that section and the inclusion of examples in the body of the standard to illustrate the proposed accounting guidance for certain paragraphs.

Currently, there is diversity in the way financial guarantee insurance contracts are accounted for by insurance enterprises. That diversity has resulted in differences in the recognition and measurement of claim liabilities and can lead to different financial statement information for similar transactions.

The draft requires that insurance enterprises recognize premium revenue when insured contractual payments (generally principal and interest) are made by the issuer of the insured financial obligation. The proposal presumes that the risk to the insurance enterprise is reduced to the extent of the insured contractual payments made. The proposed Statement also:

• Requires recognition of a claim liability prior to a default (insured event) under certain criteria
• Requires more consistent claim liability measurement based on the present value of expected cash flows
• Requires expanded disclosures about financial guarantee insurance contracts.

"Today's proposal provides investors and other financial statement users with clearer, consistent, and more comparable information about financial guarantee insurance contracts," said Mark Trench, FASB project manager. "It would be effective for financial statements issued for fiscal years beginning after Dec. 15, 2007, and all interim periods within those fiscal years."

The board is seeking written comments on the proposal by June 18, 2007. Parties interested in providing input on the proposal should submit their comments by email to director@fasb.org, File Reference No. 1530-100.