C33 : Reporting Results Flashcards
Discuss the greater emphasis that changes in Accounting Standards have placed on asset and liability valuation over recent years
- greater emphasis on neutrality, rather than prudence. - For trading companies there has also been a move away from historical cost towards ‘fair values’.
Discuss the impact of ‘neutrality’ or use of ‘fair values on financial product providers
- Recalculate assets and liabilities at the end of each accounting period
- Gains and losses on recalculation are included in some form of income statement for the period
- can lead to volatile results if assets and liabilities do not move consistently.
List 11 accounting concepts
cost
money measurement
going concern
business entity
realisation
accruals
matching
dual aspect
materiality
prudence
consistency.
When interpreting accounts, to what factors is it essential to give special attention
It is necessary to be familiar with
1. Rules governing the preparation of the accounts
2. Accounting rules and conventions that apply in the country concerned.
Other factors:
1. going concern basis or discontinuance basis
2. true and fair view
3. Consistency with prior year
List the six additional reports that accompany the published accounts
- may reveal much more about the company than an
analysis of the published numbers. - what is not said or disclosed in the reports can give greater insight to the company’s position than what is publicly disclosed.
These additional reports might include:
chairperson’s and CEO’s statements
investment report
strategic report
risk report
remuneration report
corporate governance report.
Outline the content of the additional report :
Chairperson’s and CEO’s statements
- Depending on what is said elsewhere in the reports, these might give details of the successes of the year.
- Little will be said about the failures.
- Performance against key objectives should be reported.
- These reports normally refer to changes at Board and senior management level and give an idea of whether the company is flourishing or not.
- Exceptional events that have happened during
the period, including:
merger and acquisition activity
internal restructures
unusual claims experience
exceptional expenditure.
Outline the content of the additional report :
Investment report
- Summary of investment strategy and performance.
- It is often included within another report.
Outline the content of the additional report :
Strategic report
- Company’s long-term and short-term strategic objectives,
- Report how they have been met and the progress being made to achieve the long-term objectives.
- Performance against Key Performance Indicators may be given.
Outline the content of the additional report :
Risk report
- company’s attitude to risk,
- the key risks it faces,
- How it manages and mitigates those risks.
Qualitative risk reporting might be included within the CEO’s statement, instead of a separate report
Outline the content of the additional report :
Remuneration report
- Pay of executive and non-executive directors for comparison with other similar companies.
- Attendance at Board meetings and the turnover of directors, both giving an idea of the state of the company.
Outline the content of the additional report :
Corporate governance report
- How the company is organised in terms of Board and Board committees.
- Statements on how the Board assures itself of independence would normally be included
Why is it necessary to compare the accounts of one insurer with other insurers, especially those transacting similar types of business.
- Insurance business is subject to cyclical effects that may affect many providers at more or less the same time.
Relationship between solvency (basis and methods) and published accounts
- Solvency : may use risk based approach,
- Published a/c : Other methods of making provision for liabilities and margins may be used.
List four examples of ratios that can be used when analysing insurance company accounts
Among the ratios to be considered could be:
1. Incurred expenses to premium income, Exceptional expenses may be excluded,
2. Commission to premium income
3. Operating ratio, ie the total of incurred claims and expenses to premium income
4. Outward reinsurance premium income to gross premium income.
Why benefit scheme accounts are different to insurance company accounts
Reporting on benefit schemes is different as they do not generate profit or losses
Why is disclosure of information to beneficiaries is important
- To give them sufficient information about their entitlements.
- a legislative requirement as a means of attempting to improve the security of non-State provision.
Give examples of how disclosure could help to improve the security of non-State provision.
Disclosure can improve the security of benefit schemes by:
1. Making the operation of the scheme more
transparent and so subject to scrutiny
2. Alerting members and trustees to potential problems, possibly enabling them to put pressure on the scheme sponsor to address these potential problems
3. providing members with the opportunity to leave the scheme if they are not happy with the level of security offered. If members did this in sufficient numbers, the sponsor may respond by addressing the security issue.
What information might be disclosed to beneficiaries
Disclosure could include details of the:
1. Benefit entitlements
2. Contribution obligations
3. Expense charges
4. Investment strategy
5. Risks involved
6. Treatment of entitlements in the event of insolvency.
When information might be given to beneficiaries when disclosure is required by legislation
Where disclosure is required by legislation, this may relate to information given to beneficiaries:
1. On entry
2. At regular intervals
3. Once payments commence
4. On request
5. A combination of these.
Why disclosure is also important to providers of benefits
- Well-designed information can help to encourage individuals to make non-State benefit provision.
- Poor disclosure can lead to future problems for providers, as it may give rise to the beneficiaries gaining false expectations of their future benefits.
Why disclosure is also important to owners of providers of benefits
- To be aware of the financial significance of the benefit obligations that exist
- Form a realistic opinion of the company’s current and future financial position.
List four common aims of most accounting
standards in relation to benefit schemes
Come common aims that most of the standards attempt to achieve:
1. Recognising the realistic costs of accruing benefits
2. Avoiding distortions resulting from fluctuations in the flow of contributions from the employer to the pension scheme
3. Consistency in the accounting treatment from year to year
4. disclosure of appropriate information.
List nine items that accounting standards may require to be disclosed relating to a benefit scheme
Possible disclosure requirements that may be needed include the:
assumptions used
actuarial method used
value of liabilities accruing over the year
increase in the past service liabilities over the year
investment return achieved on the assets over the year
surplus / deficit
change in the surplus / deficit over the year
benefit cost over the year in respect of any directors
membership movements.
