Travelers 2015 Annual Report Download - page 170

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Presentation of Financial Statements: Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern
In August 2014, the FASB issued guidance to address the diversity in practice in determining when
there is substantial doubt about an entity’s ability to continue as a going concern and when an entity
must disclose certain relevant conditions and events. The new guidance requires an entity to evaluate
whether there are conditions or events, considered in the aggregate, that raise substantial doubt about
the entity’s ability to continue as a going concern within one year after the date that the financial
statements are issued (or available to be issued). The new guidance allows the entity to consider the
mitigating effects of management’s plans that will alleviate the substantial doubt and requires certain
disclosures when substantial doubt is alleviated as a result of consideration of management’s plans. If
conditions or events raise substantial doubt that is not alleviated, an entity should disclose that there is
substantial doubt about the entity’s ability to continue as a going concern within one year after the date
that the financial statements are issued (or available to be issued), along with the principal conditions
or events that raise substantial doubt, management’s evaluation of the significance of those conditions
or events in relation to the entity’s ability to meet its obligations and management’s plans that are
intended to mitigate those conditions. The guidance is effective for annual periods ending after
December 15, 2016, and interim and annual periods thereafter.
Derivatives and Hedging: Determining Whether the Host Contract in a Hybrid Financial Instrument Issued
in the Form of a Share Is More Akin to Debt or to Equity
In November 2014, the FASB issued updated guidance to clarify when the separation of certain
embedded derivative features in a hybrid financial instrument that is issued in the form of a share is
required. That is, an entity will continue to evaluate whether the economic characteristics and risks of
the embedded derivative feature are clearly and closely related to those of the host contract.
Specifically, the amendments clarify that an entity should consider all relevant terms and features,
including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of
the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily
determine the economic characteristics and risks of the host contract. Rather, the nature of the host
contract depends upon the economic characteristics and risks of the entire hybrid financial instrument.
The updated guidance is effective for reporting periods beginning after December 15, 2015. Early
adoption is permitted. The adoption of this guidance is not expected to have a material effect on the
Company’s results of operations, financial position or liquidity.
Consolidation: Amendments to the Consolidation Analysis
In February 2015, the FASB issued updated guidance that makes targeted amendments to the
current consolidation accounting guidance. The update is in response to accounting complexity
concerns, particularly from the asset management industry. The guidance simplifies consolidation
accounting by reducing the number of approaches to consolidation, provides a scope exception to
registered money market funds and similar unregistered money market funds and ends the indefinite
deferral granted to investment companies from applying the variable interest entity guidance. The
updated guidance is effective for annual and interim periods beginning after December 15, 2015. The
adoption of this guidance is not expected to have a material effect on the Company’s results of
operations, financial position or liquidity.
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