Odomirok 1-5 Flashcards

1
Q

Purpose of financial reporting

A

Communicate financial results to the stakeholders

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2
Q

Accounting principles prescribed by the State Regulators

A

Statutory Accounting Principles (SAP)

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3
Q

Main reason that SAP rules are conservative

A

Main focus of the regulators is to ensure that the policyholders will be protected

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4
Q

Primary users of Generally Accepted Accounting Principles (GAAP)

A

Investors

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5
Q

Main objective of GAAP

A

Present results that closely measure the financial performance during a period

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6
Q

Describe the balance sheet

A

Shows the assets and liabilities as of a certain point in time

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7
Q

Describe the income statement

A

Shows the financial results (income) earned during a period

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8
Q

Describe the Capital & Surplus exhibit

A

Lists those transactions that impact surplus, but which are not included in the income statement

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9
Q

Describe the Cash Flow Statement

A

Shows the cash flows into and out of the firm

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10
Q

List a party that would take a “liquidation” view of insurer & one that would take a “going concern” view:

A

GC: Investors
L: Regulators

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11
Q

Compare Fair Value to Historical Cost:

A

Fair value: value it can be traded at in the open market

Historical cost: purchase price less depreciation

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12
Q

List an advantage of Fair Value & one for Historical Cost

A

Historical cost is more reliable (objectively verifiable), but fair value is often more accurate (consistent with actual market value)

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13
Q

Compare principles to rules, including their respective advantages:

A

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

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