Odomirok 1-5 Flashcards
Purpose of financial reporting
Communicate financial results to stakeholders
Accounting principles prescribed by the State Regulators:
Statutory Accounting Principles (SAP)
Main reason that SAP rules are conservative:
Main focus of the regulators is to ensure that the policyholders will be protected
Primary users of Generally Accepted Accounting Principles (GAAP):
Investors
Main objective of GAAP:
Present results that closely measure the financial performance during a period
Describe the Balance Sheet:
Shows the assets and liabilities as of a certain point in time
Describe the Income Statement:
Shows the financial results (income) earned during a period.
Describe the Capital & Surplus exhibit:
Lists those transactions that impact surplus, but which are not included in the income statement
Describe the Cash Flow Statement:
Shows the cash flows into and out of the firm
List a party that would take a “liquidation” view of insurer & one that would take a “going concern” view:
GC: Investors
L: Regulators
Describe Notes to the Financial Statements:
Quantitative and qualitative disclosures elaborating on elements from the statements.
Compare Fair Value to Historical Cost:
Fair value: value it can be traded at in the open market
Historical cost: purchase price less depreciation
List an advantage of Fair Value & one for Historical Cost:
Historical cost is more reliable (objectively verifiable), but fair value is often more accurate (consistent with actual market value).
Compare principles to rules, including their respective advantages:
Principle: a general accounting approach that the users need to interpret
Rule: specific guidance that users need to follow
The rules are easier to interpret, but the principles are more adaptable to changes
