Chapter 7

Question 1

what is the principal of segregation of duties?

Answer 1

it required the employer to design jobs so that job tasks do not place an employee in a position to conceal errors or irregularities in the normal course of his employment.

Question 2

Name 9 specific activities preformed by the accounting department

Answer 2

1. establish system of accounts for the company to record, group and summerize like data.
2. maintain records, and investigate discrepencies
3. records cash receipts and disbursement
4. prepare and analyze finance statements
5. help other departments interpret financial results
6. analyse operating costs, and allocate changes where needed
7. assist in developing long-term financial plans for the entire organization
8. compile budgets and preapres reports on performances that deviates from budgets
9. prepare tax returns

Question 3

why and how do company managers use accounting informaiton?

Answer 3

1. assess day-to-day operations
2. are they meeting financial goals
3. forecast future needs

Question 4

how and why do external stakeholders use the companys financial information?

Answer 4

1. ensure company will be able to pau benefits

2. evaluate company’s return on investments and its profitability.

Question 5

what are the two general types of accounting developed to meet the needs of the company;s users of accounting information?

Answer 5

1. financial accounting- process of reporting company’s financial accounting info to meet the needs of the external stakeholders
2. management accounting- process of identifying, measuring, analyzing and communicating financial information to a company’s internal stakeholders.

Question 6

Name 4 types of financial accounting

Answer 6

1. premium
2. investment
3. general
4. tax

Question 7

define premium accounting

Answer 7

operation that maintaines detailed accounting records of all financial transactions related to the policies an insuere has issue.
it bills policy owners, records premium payments, calculates commisions, generates management reports and fin statements.

Question 8

define investment accounting

Answer 8

records transactions related to the assets in an insrer’s investment transactions, investment accounting is mostly automated.

Question 9

define general accounting

Answer 9

basic accounting operations that all the business udnerstake. ie. payroll accouting, and disbursement accounting.

Question 10

what are the objectives of disbursement accoutning

Answer 10

1. provude a permanent record of all cash disbursed or paid out
2. confirm cash disbursements are properly authorized
3. ensure that all disbursements are charged to the proper account.

Question 11

define tax accounting

Answer 11

keeps records related to all company’s taxes and prepares tax returns and filings such as tax forms for employe wages, producer commissions and policyowner benefit payments and withdrawls.

Question 12

what is recognition?

Answer 12

the process of classifying items in a transaction as assets, liabilities, capital, surplus, revenues or expenses and recording the transactions in the companys accounting records

Question 13

what is valuation?

Answer 13

the process of calculating the monetary value of a compnay’s assets, liabilities and capital for accounting and financial reporting purposes.

Question 14

What is the term giving to a set of financial accounting standards, conventions, and rule that US stock insures follow when summarizing transactions and preparing financial statements?

Answer 14

GAAP

generally accepted accounting principal

Question 15

what is the underlying premise of GAAP?

Answer 15

going-concern concept- which means that accounting records are based on the assumption that a company will continue to operate indefinitely

Question 16

what are statutory accound practices”?

Answer 16

the accounting standards that all life insurer’s in the US must follow when preparing the annual statement and other financial report that they must submit to state regulators. They focus on solvency.

Question 17

What did the NAIC approve, which helped minimalize the difference in standard amount the states?

Answer 17

codification of statuatory accounting principals. which created a single, basic set of writing standards for statutory accounting.

Question 18

Define accounting conservation

Answer 18

understates the values for a company’s assets, overstates the value of a company’s liabilities and expenses, and projuect a lower level of net income than would be the case if the company used a less conservative reporting method such as GAAP.

Question 19

why is accounting conservation fundamental to statutory accounting?

Answer 19

insurers want to demonstrate to regulators that they are able to meet policy obligations even under adverse circumstances.

Question 20

The international accounting standards board (IASB) developed the International financial reporting standard (IFRS) to attempt what?

Answer 20

to promote consistency, comparability, and more complete disclosure of information included in corporate financial statements.

Question 21

what is a cash flow statement?

Answer 21

provides information about the company’s cash receipts, cash disbursement, and the net change in cash during a specified period

Question 22

what is the statement of owners equity show?

Answer 22

the changes that occurred in owners’ equity between two sequential balance sheets.

Question 23

what is an asset valuation?

Answer 23

the process of calculating the monetary values for assets.

Question 24

Assest can be divided into 3 categories: admitted, partially admitted, and nonadmitted. Define these terms

Answer 24

1. admitted: full value can be reported on the assets page of the annual satement. ie. cash, investment-grade securities
2. partial: only a portition of their monetary value is reported. ie: invested assets that are decreased by any amount that exceedxs the statuatory investment limitations.
3. non: not listed or valued. ie: furniture, supplied, advance to producers, low-quality investments,

Question 25

Management accounting helps to identify areas of an insuere’s business, that are not performing as planed. How can this tool be useful ?( 4)

Answer 25

1. measure profitability of products and services
2. analyze operating costs and manage expenses
3. budget resources to support goals
4. evaluate the efficiency of procedures and staff

Question 26

what is budgeting?

Answer 26

Management accounting process that creates a financial plan of action designed to help an organization achieve its goals.

Question 27

What is a master budget?

Answer 27

individual budgets of each department are combined to create a master budget, which shows the overall opperating and financing plans for the company during a specified accounting period.
OTs usual compiled annually and is updated semi-annually

Question 28

How can budgetting be used as an important control tool?

Answer 28

managers preform a variance analysis, in which they compare actual results to budgeted amount. Any discrepencies require investigations

Question 29

What is a favourable variance?

Answer 29

occurs when actual revenues are greater than expected revenues or actual expenses are less than expected expenses.

Question 30

What is an unfavourable variance?

Answer 30

occurs when actual revenues are less than expected revenues or actual expenese are greater than expected.

Question 31

What system is used for accumulating and categorizing expense data?

Answer 31

cost accounting

Question 32

what are the objects of cost accounting?

Answer 32

1. establish effective cost controls

2. generate accurate estimates of future costs for use in pricing a company’s products

Question 33

What do staff in treasury operations perform?

Answer 33

range of activities from processing check deposits to forecasting cash flow, to service as the insuere’s liasion in baking relationships.
they also mange short-term invested assetes.

Question 34

What are the key goals/purposes of treasury operations?

Answer 34

ensure job duties for cash receipts, disbursements, bank reconciliations are segregated.
collection procedures are efficient and independently monitored
controls for authorization, check security and accounting records for cash disbursements are maintained.

Question 35

What is a lockbox?

Answer 35

a post-office box that policy owners use to remit payments.

Question 36

What are the treasury operation activities performed in liquidity management?

Answer 36

1. managing daily cash balances to determine the amount of cash to invest or to borrow overnight
2. anticipate and coorfinate short-term and long-term obligations to assure that cash is available to pay obligations on time
3. manage risks assocaited with foreign exchange rates
4. mange wire transfers of cash
5. establish international banking relationships to smooth transactions across jurisdictions
6. liaison to investment operations
7. generate projects of cash receipts and cash projections by product and by line of business
8. ensure compliance with rating agency requirements concerning ongoing liquidity
9. uncovering and tracking fraudulent activities in cash transactions
10. developing the insurer’s business continuity plan, in coordination with IT funciton or with the COO.

Question 37

Which is the kind of interal audit, in which auditors evaluate the accuracy of accounting and financial reporting and the adequacy of controls over cash and other assets.

Answer 37

internal financial audit.

Question 38

What are the outcomes of preforming an internal financial audit?

Answer 38

determine if the companys financial records are fair and accurate, if the control the procedures are adequate and followed, assets are safeguarded and if compliance obligations are being met.