This publication summarizes the new accounting standards with mandatory effective dates in the first quarter of 2024 for public entities, as well as new standards that take effect in annual 2023 financial statements for nonpublic entities. With a 30+ year history of serving industries where security, compliance, speed, and performance are paramount, find out why Flexi is the logical accounting choice  for insurance agencies and companies of all sizes. Ensure your bookkeeping, income tax prep, and filing are professionally handled—supported by one robust platform. As an insurance agent, you understand the importance of protecting one’s assets. That’s why your clients rely on your expertise when it comes to covering their health, vehicles, homes, businesses, and other important aspects of their lives.

Scope of ASC 606

• A contract asset is recognized when control of a performance obligation is transferred to the customer before the customer pays consideration or before payment is due.
• This publication addresses the most commonly encountered issues when applying the guidance in ASC 606 for insurance entities, brokers, agencies, third-party administrators and the warranty industry.
• Once the bill is paid, the company then sends a commission payment to the agency that sold the policy.
• Most reasons though are not good including poor accounting, fraud, mistakes at the CSR level entering the right commission amounts, coding renewals incorrectly, and paying producers extra because someone feels sorry for them.
• Cherry Bekaert has extensive experience serving clients in the insurance industry, whether navigating compliance matters and issues, lessening tax burdens or evaluating and executing transactions.

Since most insurance agencies file as Sub-chapter S corporations, LLCs or sole proprietorships, they may drain the operating account of the excess revenues of during the peak months and make deposits from a savings account or line of credit during the slow months. Unfortunately the deposits made during the slow months can be accidentally entered as sales revenues by the accountant, resulting in an error. We have actually had clients that paid income taxes on their own funds due to this type of error.

The Future of AI Is Now. Is Tax Ready?

Discover how we can help you have better finances with a personalized demo from a Bench expert, ready to answer all your questions. Sign up as a customer today and get a free month of bookkeeping, valued at $299. Get free guides, articles, tools and calculators to help you navigate the financial side of your business with ease. Our intuitive software unearned revenue automates the busywork with powerful tools and features designed to help you simplify your financial management and make informed business decisions.

Work With an Experienced Insurance Accountant and Payroll Specialist

If your CPA encourages taking chances on your tax returns, make sure you get a certificate of E&O insurance from him/her. If their reasoning is, “I think we can win if the IRS catches this.” Weigh the tax savings versus the extra cost to defend a “win” the case. We deliver superior results through our industry expertise, transaction expertise, and professional network. Please contact us for a paper copy of this article if you would like to share it with your bookkeeper or accountant. It is also a best practice to file all of the commission statements and to keep them for at least 36 months.

• If the agency does not have one of the more sophisticated management systems to track monthly commissions, it is recommended that all of the monthly commissions be entered into a simple spreadsheet as depicted below.
• If an insurer determines that the activities are predominantly performed as part of fulfilling the insurance obligation or mitigating the insurer’s insurance risk, FinREC believes that the combined contracts should be accounted for as one contract under ASC 944.
• The unique nature of insurance contracts, with their long-term liabilities and inherent risks, presents specific challenges for accountants.
• These can include things like 401(k) plans or even improving their work environment with the help of an HR service.
• The assets recognized for the costs to fulfill a contract are amortized on a systematic basis that is consistent with the transfer of the services to which the asset relates.

On average, expect to spend 15 minutes each month answering questions for your bookkeeper, or uploading supporting docs. Your bookkeeper will be your main point of contact, but at times you might hear from another member of your team. This is usually when your bookkeeper goes on vacation, is sick, or otherwise unavailable. Learn more about Bench, our mission, and the dedicated team behind your financial success. Develop the skills you need to understand a range of financial ratios, calculate profitability, and interpret external evaluations in order to assess insurer strength.

The new revenue recognition standard, ASC 606-Revenue from Contracts with Customers, issued accounting for insurance brokers by the Financial Accounting Standards Board (FASB or Board) became effective for public entities for fiscal years beginning after December 15, 2017, and for interim periods therein. Nonpublic entities were required to adopt the standard for fiscal years beginning after December 15, 2018, and during interim periods within fiscal years beginning after December 15, 2019. If you do your own taxes, you will likely miss several deductions (even with the help of tax software).

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. Say Bookstime goodbye to mountains of documentation and tedious manual data management—we automate inputs directly from your linked accounts. Get insights from one centralized dashboard so you can effortlessly understand your brokerage’s financial standing and make strategic decisions. With Bench Accounting, insurance brokers can focus more on policies and less on paperwork.