Assertions Flashcards
(6 cards)
What are assertions?
➢ Assertions are characteristics that need to be tested to ensure that financial
records and disclosures are correct and appropriate
➢ Whether using internal or third party data , the organisation will need to make
certain assertions about data
➢ Such assertions include :
▪ That a liability or asset exists on a certain date
▪ That a liability is held or an asset is owned on a given date
▪ When an event occurs, the time and associated income/ expenditure with an
event are allocated to the correct accounting period
▪ The data is complete ( no unrecorded liabilities ,assets or events )
▪ Appropriate value of an asset or liability has been recorded
Checking assertions
➢ Reconciliation of the total number of members / policies and changes in
membership/ policies ,
o using previous data and movement data
o provides an early indicator of any trends occurring
➢ Reconciliation of the total benefit amounts and premiums and changes in them ,
using previous data and movement data
➢ Movement data should be checked against any appropriate account data , especially
with regards to benefit payments
➢ Checks should be made for any unusual values , such as impossible birth dates ,
retirement ages or start dates
➢ Consistency between salary related contributions and in-payment benefit levels
indicated by membership data and corresponding figures in the accounts
➢ Consistency between the average sum assured or premiums for each class of
business should be sensible , and consistent with the figure for previous
investigation
➢ Consistency between investment income implied by asset data and corresponding
totals in the accounts
➢ Where assets are held by third party, reconciliation between the beneficial owner’s
and the custodian’s records
➢ Consistency between shareholdings at the start and end of period , adjusted for sales
and purchases , and also bonus issues
➢ Random spot checks on data for individual members/ policies or assets ( particularly
important for members with significant liabilities , since error in data records will
have significant impact on valuation results )
➢ Full deed audit of certain assets , such as checking title deeds to large real property
, such checks include :
▪ Location and type of property
▪ Whether it is freehold or leasehold
▪ Remaining term of the lease if leasehold
▪ Duties in respect to property management and maintenance
▪ Any restrictions on use of property
Factors that will affect the level of investigation that is appropriate when checking for these assertions
➢ Purpose of valuation ( interim or regulatory report )
➢ Significance of the assertion ( likely impact on overall results if data was incorrect)
➢ The extent to which there is other information to support or contradict the assertion
Ideal data
Sufficient quality
➢ Sufficient quantity
➢ Enables the actuarial investigation performed to be 100% reliable
Circumstances where ideal data are not available
➢ Insufficient volumes of data
- Insufficient data to provide a credible result or make credible analysis
of trends and estimate risk of adverse conditions
- Possible causes : launching new product , or branching out into a
new target market and extreme events
➢ Insufficient detail within data
- Data may have not been captured at sufficiently detailed level
- Meaning the data available is not in appropriate form for the
intended purpose
Usage of summarized data (pros and cons)
➢ In some circumstances of valuing benefits, it may be appropriate to use summarised
data instead of detailed data
➢ However this will
o reduce the reliability of the values as rigorous data validation may be
impossible and
▪ therefore means actuary may not detect errors in data
o may miss significance differences between nature of benefits that have been
grouped together
▪ lack of detail to enable data split into homogenous groups
o data cannot be used to value options or guarantees that may or may not
apply in individual basis ( potential under-estimation of guarantees)
