Reporting Results

Question 1

Areas attention should be paid to when analyzing accounts

Answer 1

• any accounting rules, guidance and practice in the country concerned

• whether the accounts have been prepared in a on going concern basis

• any changes in accounting practice

Reports accompanying accounts expand the information available about the company, e.g. providing commentary on:
• performance against key objectives
• investment strategy and performance
• progress against long- and short-term strategic goals
• attitude to risk, key risks faced, risk management and mitigation
• governance arrangements, including independence of the Board

Question 2

Insurance companies

Answer 2

Insurance companies are subject to cyclical effects, so the results of one insurance company should be compared to those of companies transacting similar types of business

Strength of the provisioning basis will affect the reported results

Accounts can be analyzed using ratios including:
• expense ratio
• commission ratio
• operating ratio (particularly for short-term business)
• ratio of outward reinsurance premiums to gross premium income

Question 3

Banks: useful measures for assessing the quality of a bank’s loan portfolio

Answer 3

• probability of default
• loss given default

Question 4

Benefit schemes: Do not generate profit or losses, so reporting differs

Disclosure to beneficiaries

Answer 4

Beneficiaries should be given sufficient clear information about the scheme, including details of:
• benefit entitlements
• contribution obligations
• expense charges
• investment strategy
• risks involved
• treatment of entitlements in the event of insolvency

Where disclosure is required by legislations, this may relate to information given to beneficiaries:
• at entry
• at regular intervals
• once payments commence
• on request
Or a combination of the above

Question 5

Disclosure in accounts

Answer 5

Where a scheme is sponsored by a company, it is common practice to include details of the benefit obligations in the company’s accounts

Different accounting standards exist but there are generally some common aims:
• recognizing the realistic costs of accruing benefits
• avoiding distortions resulting from fluctuations in the flow of contributions from the employer to the pension scheme
• consistency in the accounting treatment from year to year
• disclosure of appropriate information

Possible disclosure that may be needed include:
• assumptions
• actuarial method
• value of liabilities accruing over the year
• increase in the past service liabilities over the year
• investment return achieved on assets over the year
• surplus or deficit and the change in the figure over the year
• benefit cost over the year in respect of any directors
• membership movements