CAS Financial Reporting Flashcards
List 5 Primary financial statements
1 - BS 2 - Income statement 3 - Statements of Capital and surplus 4 - CF statement 5 - Notes to FS
Briefly discuss Balance sheet (Primary FS)
- Presents all of a company’s assets/liabs as of a specific point in time
- Diff between the assets/liab = equity (under SAP = PHs surplus)
- Unique aspect of insurance = uncertainty with the estimation of liabs for unpaid claims
Briefly discuss Income statement (Primary FS)
- Reveals a company’s financial results during a specific time period
- Difference between the revenues and expenses = net income/loss
Briefly discuss Statements of Capital and surplus (Primary FS)
Reflects certain changes in surplus that are not recorded in the income statement and reconciles the beginning surplus to the ending surplus for the reporting period
Briefly discuss Cash flow statement (Primary FS)
- Timing of the receipt or payment of cash (doesn’t coincide with the recognition in income statement)
- Presents all operations strictly from a cash perspective
- Associated revenue is generally recognized at the time the good or service is provided
Briefly discuss Notes to financial statements (Primary FS)
Include quantitative and qualitative disclosures regarding the significant accounts presented in the FS
What are the differences between Principle-Based Accounting and Rule-Based Accounting ?
- Principle-Based describes general accounting approach that must be interpreted and applied since its not just a set of rules. More adaptable to changes in the business environment
- Rule-Based depends on rules that provide specific guidance on how something should be done. Easier to audit and understand
What is the difference between Canada and the US regarding FS focus ?
- Canada: Desire to achieve consistency with published FS (use CGAAP and IFRS)
- US: Focus on insurer solvency (use SAP to report to the state)
Compare Statutory Accounting Principles(SAP) with Generally Accepted Accounting Principles(GAAP)
SAP
• Focus on insurance company solvency
• Monitoring tool to provide regulators an early warning of deterioration
• Build on principle of conservatism (certain non liquid assets not in BS)
• Loss reserves are recorded on a net of Re basis
GAAP
• Canada desire to achieve consistency with published FS
• Match revenues and expenses
• Loss reserves are recorded gross of Re
What does NAIC stands for ? What is the role of NAIC ?
National Association of Insurance Commissioners
Serves as an organization of state regulators that coordinates governance across US. Each state in the US has a state regulator. NAIC’s role is to facilitate governance between them.
Explain different key accounting concepts: Liquidation vs going-concern
- Either methods is appropriate
- Investors are more interested in the value of the company on the « going concern »
- Regulator may think in term of liquidation perspective, given they are primarily interested in satisfying PHs obligations
Explain different key accounting concepts: Fair value vs historical cost
- Recording an asset or liab at fair value means recording it at a value that it would be bought or sold for in the open market
- Recording at historical cost means valuing it at the original purchase price less depreciation
Discuss about OSFI, his mandate and how it differs from NAIC
His mandate is to:
• Supervise all fed regulated FI
• Provide actuarial advice to the Gov of Canada
Differ from NAIC in US:
• OSFI covers all fed regulated FI (not just insurance)
• OSFI has authority over the entities (not just a coordinating body)
What makes the BS unique for insurers when compared to other industries? Why is it important to the actuary to understand the policy liabilities ?
Uncertainty in the estimation of liabs of loss reserves makes it unique
Actuary must give an opinion on policy liabs (premium liabs and claims liabs) because they are the largest liabs on the BS
What is the intent of accounting standards?
To promote a consistent framework for reporting insurance cie transactions such that comparisons of financial performance and health of insurance cies can be made within the industry
What is the primary focus of GAAP ?
Presentation of a cie financial results in a manner that more closely aligns with the cie financial performance
What body defines Canadian GAAP ?
CICA - Canadian Institute of Chartered Accountants
What accounting standards apply in Canada ?
In 2010, the Canadian Accounting Standards Board adopted IFRS, regulated insurance cies meeting the definition of public accountable entities were required to adopt IFRS as of January 1 2011.
If someone has performed work in accordance with Accepted Actuarial Practice in Canada, what does this mean they’ve done ?
In accordance with the rules and the Standards of Practice (SOP) of the CIA