Chaoter 32 - Provisions Flashcards
Provisions
To meet future liabilities
Calculating individual provisions
Reasons
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
Calculating global provisions
Purpose
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
Different bases
Optimistic
Best estimate
Cautious
Factors affecting the choice of basis and valuation method
Reason for valuation
Needs of the client
Regulation and legislation
Setting assumptions with regard to purpose
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
Setting assumptions with regard to the client
Consider clients risk appetite and interactions with other stakeholders