Chapter 34 - Financial Reporting Flashcards
For this chapter should be able to do the following for the exam:
Be familiar with accounting concepts and principles
Comment sensibly on conclusions that can be drawn from analysing a simple set of accounts
- Highlight possible reasons for results, e.g. strength of basis or business growth etc.
For this chapter only expected to:
- Discuss problems that arise in defining accounting concepts and principles
- Roughly understand how to put these principles into practice
- Understand implications of reporting principles and concepts for interpretation of accounts
Do not need to know specific rules
Discuss the reporting standards for insurers in SA.
Mostly public companies
Preparation of financial statements
- IFRS or GAAP
- True and fair view
- Comparitives
Also use other reports
Briefly outline some of the information contained in reports accompanying the financial accounts.
Chairperson’s and CEO statements
- Might give details of successes of the year (typically less will be said about failures)
- Report of performance against key objectives
- Changes at board and senior management level
- Idea of if company is flourishing or not
- Information on extraordinary events during the period:
> merger or acquisitions
> internal restructures
> unusual claims experience
> exceptional expenditure (e.g. during periods of growth)
Investment report
- Summary of investment strategy and performance
- Commonly included within another report
Strategic report
- Refers to company’s long and short-term strategic objectives
- Report how progress has been made or success has been achieved
- Report performance against key indicators
Risk report
- Attitude to risk
- Key risk exposures
- Risk management and mitigation strategies
- Could be included in other report
Remuneration report
- Salaries and bonuses for executive and non-executive directors
- Attendance at board meetings
- Turnover of directors
- Last 2 can be indication of state of the company
Corporate governance report
- Describe how company is organised in terms of board and board committees
- Statements of how board assures itself of independence
List some of the important accounting ratios to be considered when looking at the accounts of insurance companies.
Incurred expenses to premium income
- Would normally excluded exceptionally large expenses
Commission to premium income
Operating ratio
- Total incurred (i.e. excluding IBNR) claims and expenses to premium income
- Used more for short-term classes of business (Why? see question p. 8)
Reinsurance premium payments to gross premium income
- Care is needed when looking at high level analyses’ such as this
- Should look at possible explanations for ratio values before drawing conclusions