Mock Exam 2 answers Flashcards
An insurer is a member of Pool Re. This means they offer:
Commercial Terror Insurance
A company wishes to confirm that its audit committee is set up and working according to best practice. To confirm this, the company should consult:
the Smith Report
Which of the following statements in respect of a company’s report and accounts is incorrect:
- all companies’ annual accounts must give a true and fair view of its situation
- the director’s report for a quoted company must comment on environmental and employee matters
- a public company must file its accounts with Companies House within 6 months of its financial year end
- the Companies Act 2006 requires a Chairman’s statement be included in the accounts for large companies
the Companies Act 2006 requires a Chairman’s statement be included in the accounts for large companies
___________________________________________________________________________
A director’s report is mandatory unless the company is subject to the small companies’ regime but a chairman’s report is optional in all cases.
Residual risk is that which remains after:
risk treatment
Where in a company’s accounts could details of any corporation tax paid be found?
balance sheet
Beta Insurance is considering whether or not to replace its existing computer system with one which will also handle the payment of some simple claims. Which of the following factors does it not need to take into account when making the final decision?
A the second hand value, if any, of the current computer system
B the cost of any future updates for the new system
C the original cost of setting up the existing system
D the number of staff who may be made redundant by the new system
the original cost of setting up the existing system
The original cost of setting up the existing computer system is a sunk cost which cannot be recovered or changed and should therefore not be included in the current decision making
process.
Why might many UK companies choose not to move to IFRS requirements when preparing accounts?
the Companies Act 2006 requires use of UK GAAP standards so many would have to complete two sets of accounts
The process of including an assessment in accounts for claims anticipated for the following year is the process of:
reserving
XYZ Ltd has a gearing ratio of 50%. This means that:
its long term borrowings are lower than its shareholder equity
The gearing ratio is calculated by long term borrowings / shareholder equity. A gearing ratio of
less than 100% indicates that borrowings are lower than shareholder equity.
An insurer carries out an exercise to establish the scenarios most likely to render its business model unviable. This is the process of:
reverse stress-testing
Reverse stress-testing is the process whereby a business identifies and assesses scenarios most likely to render the business unviable.
Who decides whether a rating agency should be employed by an insurer and which rating agency to use?
its board of directors
It is the board of directors of insurers which decides to employ the services of a rating agency and selects which agency to use.
It is expected that the new IT system will need to be replaced again in 6 years’ time. How this will be handled in the company accounts?
the cost of the system will be apportioned over its 6 year lifespan
When the value of an asset will reduce over time, this depreciation is shown by allocating a cost to each year the asset is in use in the business.
Which of the following ratios will look better as a result of the under-reserving?
A combined ratio
B return on equity (ROE)
C outstanding claims
D gearing
outstanding claims
The outstanding claims ratio will look better as this is calculated by outstanding claims / net assets and an under-reserved company will have a higher level of net assets. The lower the ratio, the more secure the company.
Moody’s raises a concern about the under-reserving. Which area of their analytical framework is this most likely to fall within?
enterprise risk management (ERM)
ERM is the method by which a company manages its risks. An insurer who is under-reserving is not effectively managing the risks it has taken on.
Tom decides that, for the coming year, it will be best for each department to be given a budget to work within. Any deviation outside of this budget must be explained to senior management. This is an example of:
a top-down fixed budget
A budget which is set by senior management and passed down to teams is a top-down budget. As there is no flexibility here, it is a top-down fixed budget.
