Chapter 34: Reporting results Flashcards
Accounting concepts
MC MMC BRAD Pg
Money measurement: Record only transactions that can be expressed in money terms
Cost: Assets should be recorded as the cash amount at the time that the asset is acquired
Matching: Expenses should be recorded in the same period where related revenue is earned
Materiality: Only material transactions should be recorded
Consistency: Same accounting principles be used from one period to the next
Business entity: The affairs of the owners should be kept seperate to the affairs of the company
Realisation: Revenue can only be realised when it is earned
Accruals: Income and expenses are realised in the period in which they occur rather than when payment is received
Dual Aspect: Every transaction will have two entries: Receive invoice, increase sales, decrease amounts receivable
Prudence: Do not overstate revenue and understate expenses ( A vs L)
Going concern: It is assumed that the company will continue trading indefinitely
Additional reports:
CISRRC /CRIS RC
● Chairperson’s and CEO’s statements- success, progress against key objectives, senior management changes.
● Investment report - The investment strategy and the performance of the fund(s)
● Strategic report - Progress against long term and short term strategic goals
● Risk report - attitude towards risk, key risk faced, risk management approaches taken
● Remuneration report - Directors’ pay, board attendance, turnover of directors
● Corporate governance report - organisation of board and committee, independence of directors
Interpreting accounts Nicr Fap/
ClEO IRP:
Nature of the business:
- investment mix
- claim settlement pattern - Claims paid / Outstanding claims
- reinsurance
Financial condition:
- asset to liability ratio to assess financials strength
- assess the key ratios: CEO RIP
- profitability and performance
- Claims ratio (gross and net) (c/p)
- Expense and commission ratio (e+com/np)
- Operating ratio (nc+e/np)
- Investment performance ratio (inv income/ A)
- return on capital ratio (post tax profit/ free reserves)
- profit margin (gprof/np)
- Reinsurance ratio (outward RE p / GPI)
Similar aims for different accounting standards CARS
Consistency in account treatments from year to year
Appropriate information disclosed
Recognize realistic cost of benefit accrual
Smooth benefit provision
Information to be disclosed includes (DISCLOSURE SRC):
Director’s pension costs
Investment strategy and performance
Surplus/deficit (last year, accumulated to date)
Calculation method and assumptions
Liabilities (accrued over year, accrued to date)
Options and guarantees
Sponsor’s contributions and members’ contributions
Uncertainties (risks)
Rights on wind-up
Expenses
Strategic report - Key performance indicators shown
Risk report - attitude, management approach, risk based capital requirement calculation
Corporate governance - the management structure of board set out
Assumptions
Actuarial method
Membership Movements
Individual disclosures are often made on (PRICE):
Payment commencement Request Intervals Combination Entry
Causes of inappropriate advice (CRIMES)
Complicated products Rubbish/incompetent advisors Integrity of advisor lacking Model/parameter error Errors in data State encouraged, but inappropriate, actions
Disclosure is important in a benefit scheme because (SIMMERS):
Sponsor aware of financial significance of benefits
Informed decisions can be made
Miss-selling is avoided
Manages expectations of members
Encourages take up
Regulatory requirement
Security of scheme improved as sponsor/trustees more
Differences that exist in disclosure relates to (AFASI):
Actuarial methodology and assumptions
Flexibility in the setting of assumptions
Amount of information to be disclosed
Smoothing of year on year fluctuations
Importance of the balance sheet and income statements in demonstrating a true financial picture
