direct-response advertising

ASC 340-20 formerly governed capitalized advertising costs (including direct-response advertising) — when such costs could be recorded as assets, how they were measured, amortized, tested for realizability, presented, and disclosed. Every paragraph in the subtopic (Sections 05, 15, 25, 30, 35, 45, 50, 55, and 60) has been superseded by Accounting Standards Update No. 2014-09 (Revenue from Contracts with Customers). The subtopic therefore contains no operative guidance; advertising costs are now expensed as incurred (or the first time the advertising takes place) under ASC 720-35, and contract-related costs are addressed by ASC 340-40.

ASC 944-720 tells insurance entities which costs must be expensed as incurred rather than capitalized as deferred acquisition costs. Because 944-30-25-1A permits capitalization only of incremental direct acquisition costs relating to successful contract acquisitions or renewals, everything else — non-qualifying acquisition-related costs and all indirect costs — is charged to expense as incurred (944-720-25-2).

ASC 944-30 governs how insurance entities capitalize, amortize, present, and disclose acquisition costs (DAC) for short-duration contracts, long-duration contracts, investment contracts, and reinsurance, plus deferred sales inducements. Only costs "related directly to the successful acquisition" of new or renewal contracts may be capitalized (944-30-25-1A) — incremental direct costs, directly related compensation/fringe benefits for underwriting, policy issuance and processing, medical and inspection, and sales force contract selling, plus certain other direct costs and qualifying direct-response advertising. Post-ASU 2018-12, long-duration DAC is amortized on a constant level basis over the expected contract term (944-30-35-3A), and the Internal Replacement Transactions Subsections determine whether a modified/replaced contract is "substantially unchanged" (continuation, DAC carried forward) or "substantially changed" (extinguishment, DAC written off).