Flashcards in Chapter 7 Deck (38):
what is the principal of segregation of duties?
it required the employer to design jobs so that job tasks do not place an employee in a position to conceal errors or irregularities in the normal course of his employment.
Name 9 specific activities preformed by the accounting department
1. establish system of accounts for the company to record, group and summerize like data.
2. maintain records, and investigate discrepencies
3. records cash receipts and disbursement
4. prepare and analyze finance statements
5. help other departments interpret financial results
6. analyse operating costs, and allocate changes where needed
7. assist in developing long-term financial plans for the entire organization
8. compile budgets and preapres reports on performances that deviates from budgets
9. prepare tax returns
why and how do company managers use accounting informaiton?
1. assess day-to-day operations
2. are they meeting financial goals
3. forecast future needs
how and why do external stakeholders use the companys financial information?
1. ensure company will be able to pau benefits
2. evaluate company's return on investments and its profitability.
what are the two general types of accounting developed to meet the needs of the company;s users of accounting information?
1. financial accounting- process of reporting company's financial accounting info to meet the needs of the external stakeholders
2. management accounting- process of identifying, measuring, analyzing and communicating financial information to a company's internal stakeholders.
Name 4 types of financial accounting
define premium accounting
operation that maintaines detailed accounting records of all financial transactions related to the policies an insuere has issue.
it bills policy owners, records premium payments, calculates commisions, generates management reports and fin statements.
define investment accounting
records transactions related to the assets in an insrer's investment transactions, investment accounting is mostly automated.
define general accounting
basic accounting operations that all the business udnerstake. ie. payroll accouting, and disbursement accounting.
what are the objectives of disbursement accoutning
1. provude a permanent record of all cash disbursed or paid out
2. confirm cash disbursements are properly authorized
3. ensure that all disbursements are charged to the proper account.
define tax accounting
keeps records related to all company's taxes and prepares tax returns and filings such as tax forms for employe wages, producer commissions and policyowner benefit payments and withdrawls.
what is recognition?
the process of classifying items in a transaction as assets, liabilities, capital, surplus, revenues or expenses and recording the transactions in the companys accounting records
what is valuation?
the process of calculating the monetary value of a compnay's assets, liabilities and capital for accounting and financial reporting purposes.
What is the term giving to a set of financial accounting standards, conventions, and rule that US stock insures follow when summarizing transactions and preparing financial statements?
generally accepted accounting principal
what is the underlying premise of GAAP?
going-concern concept- which means that accounting records are based on the assumption that a company will continue to operate indefinitely
what are statutory accound practices"?
the accounting standards that all life insurer's in the US must follow when preparing the annual statement and other financial report that they must submit to state regulators. They focus on solvency.
What did the NAIC approve, which helped minimalize the difference in standard amount the states?
codification of statuatory accounting principals. which created a single, basic set of writing standards for statutory accounting.
Define accounting conservation
understates the values for a company's assets, overstates the value of a company's liabilities and expenses, and projuect a lower level of net income than would be the case if the company used a less conservative reporting method such as GAAP.
why is accounting conservation fundamental to statutory accounting?
insurers want to demonstrate to regulators that they are able to meet policy obligations even under adverse circumstances.
The international accounting standards board (IASB) developed the International financial reporting standard (IFRS) to attempt what?
to promote consistency, comparability, and more complete disclosure of information included in corporate financial statements.
what is a cash flow statement?
provides information about the company's cash receipts, cash disbursement, and the net change in cash during a specified period
what is the statement of owners equity show?
the changes that occurred in owners' equity between two sequential balance sheets.
what is an asset valuation?
the process of calculating the monetary values for assets.
Assest can be divided into 3 categories: admitted, partially admitted, and nonadmitted. Define these terms
1. admitted: full value can be reported on the assets page of the annual satement. ie. cash, investment-grade securities
2. partial: only a portition of their monetary value is reported. ie: invested assets that are decreased by any amount that exceedxs the statuatory investment limitations.
3. non: not listed or valued. ie: furniture, supplied, advance to producers, low-quality investments,
Management accounting helps to identify areas of an insuere's business, that are not performing as planed. How can this tool be useful ?( 4)
1. measure profitability of products and services
2. analyze operating costs and manage expenses
3. budget resources to support goals
4. evaluate the efficiency of procedures and staff
what is budgeting?
Management accounting process that creates a financial plan of action designed to help an organization achieve its goals.
What is a master budget?
individual budgets of each department are combined to create a master budget, which shows the overall opperating and financing plans for the company during a specified accounting period.
OTs usual compiled annually and is updated semi-annually
How can budgetting be used as an important control tool?
managers preform a variance analysis, in which they compare actual results to budgeted amount. Any discrepencies require investigations
What is a favourable variance?
occurs when actual revenues are greater than expected revenues or actual expenses are less than expected expenses.
What is an unfavourable variance?
occurs when actual revenues are less than expected revenues or actual expenese are greater than expected.
What system is used for accumulating and categorizing expense data?
what are the objects of cost accounting?
1. establish effective cost controls
2. generate accurate estimates of future costs for use in pricing a company's products
What do staff in treasury operations perform?
range of activities from processing check deposits to forecasting cash flow, to service as the insuere's liasion in baking relationships.
they also mange short-term invested assetes.
What are the key goals/purposes of treasury operations?
ensure job duties for cash receipts, disbursements, bank reconciliations are segregated.
collection procedures are efficient and independently monitored
controls for authorization, check security and accounting records for cash disbursements are maintained.
What is a lockbox?
a post-office box that policy owners use to remit payments.
What are the treasury operation activities performed in liquidity management?
1. managing daily cash balances to determine the amount of cash to invest or to borrow overnight
2. anticipate and coorfinate short-term and long-term obligations to assure that cash is available to pay obligations on time
3. manage risks assocaited with foreign exchange rates
4. mange wire transfers of cash
5. establish international banking relationships to smooth transactions across jurisdictions
6. liaison to investment operations
7. generate projects of cash receipts and cash projections by product and by line of business
8. ensure compliance with rating agency requirements concerning ongoing liquidity
9. uncovering and tracking fraudulent activities in cash transactions
10. developing the insurer's business continuity plan, in coordination with IT funciton or with the COO.
Which is the kind of interal audit, in which auditors evaluate the accuracy of accounting and financial reporting and the adequacy of controls over cash and other assets.
internal financial audit.