Chaoter 32 - Provisions Flashcards

1
Q

Provisions

A

To meet future liabilities

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2
Q

Calculating individual provisions

Reasons

A

Determining value of liabilities for published accounts
Demonstrating supervisory solvency
Determining the value of liabilities for internal management accounts
Valuing the provider for merger or acquisition
Determining whether discretionary benefits can be awarded
Setting future contribution levels for a benefit scheme
Valuing benefit improvement for a benefit scheme
Calculating discontinuance benefits
Influencing investment strategy
Providing disclosure information to benificiaries
To provide for expected credit losses for a bank

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3
Q

Calculating global provisions

Purpose

A

Act as additional protection against insolvency
Cover risks, financial and non financial, cannot necessarily be attributed to individual contracts
Reflect degree of mismatching of assets and liabilities

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4
Q

Different bases

A

Optimistic
Best estimate
Cautious

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5
Q

Factors affecting the choice of basis and valuation method

A

Reason for valuation
Needs of the client
Regulation and legislation

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6
Q

Setting assumptions with regard to purpose

A

Published accounts - going concern or break up, true and fair view, best estimate or prudent
Supervisory solvency - degree of prudence
Internal accounts - best estimate
Liability transfers - best estimate
Determining whether discretionary benefits can be awarded - cautious
Setting contribution levels - obiectove of parties concerned
Calculating discontinuance benefits - best estimate
Setting investment strategy - realistic, Stochastic
Disclosure information for Beneficiaries - realistic

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7
Q

Setting assumptions with regard to the client

A

Consider clients risk appetite and interactions with other stakeholders

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