Financial Reporting

Question 1

Contrast the following accounting concepts:
Liquidation vs. going-concern

Answer 1

Liquidation
- sees assets and liabilities as a run‐off
Going-concern
- sees assets and liabilities as an ongoing business

Question 2

Contrast the following accounting concepts:
Fair value vs. historical cost

Answer 2

Fair value
- value is the current market value

Historical cost
- original purchase price minus depreciation

Question 3

Contrast the following accounting concepts:
Principle-based vs. rule-based

Answer 3

Principle-based
- general accounting approach that must be interpreted and
applied

Rule-based
- specific accounting guidance on how something should be done.

Question 4

SAP v GAAP: Objective

Mind the GAAP from period to period
We gotta measure ability to pay claims aSAP.

Answer 4

GAAP stresses measurement of emerging earnings of a business from period to period, (i.e., matching revenue to expense)

SAP stresses measurement of ability to pay claims in the future.

Question 5

SAP v GAAP: User

Answer 5

GAAP is designed to meet the varying needs of the different users of financial statements.

SAP is designed to address the concerns of regulators, who are the primary users of statutory financial
statement.

Question 6

SAP v GAAP: Asset recognition

Answer 6

GAAP has recognized certain assets such as deferred policy acquisition cost

SAP treats it as expense when incurred.

Question 7

SAP v GAAP: Deferred taxes

Answer 7

It has been recognized by GAAP but not SAP