TIA Section A - Odomirok 1-5

Question 1

Purpose of financial reporting

Answer 1

Communicate financial results to the stakeholders

Question 2

Accounting principles prescribed by the State Regulators

Answer 2

Statutory Accounting Principles (SAP)

Question 3

Main reason that SAP rules are conservative

Answer 3

Help ensure that the policyholders will be protected

Question 4

Primary user of GAAP:

Answer 4

Investors

Question 5

Main objective of GAAP:

Answer 5

Present results that closely measure the financial performance during a period

Question 6

Describe the Balance Sheet

Answer 6

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

Question 7

Describe the Income Statement

Answer 7

Shows the income earned during a period.

Question 8

Describe the Capital & Surplus exhibit

Answer 8

List those transactions that impact surplus, but not income

Question 9

Describe the Cash Flow Statement

Answer 9

Shows the cash flows into and out of the firm

Question 10

List a party that would take a “liquidation” view of an insurer:

Answer 10

L: Regulators

Question 11

List a party that would take a “going concern” view of an insurer:

Answer 11

GC: Investors

Question 12

Compare Fair Value to Historical Cost

Answer 12

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

Historical Cost: purchase price less depreciation

Question 13

List an advantage of Fair Value

Answer 13

Fair value is often more accurate (consistent with actual market value).

Question 14

List an advantage of Historical Cost:

Answer 14

Historical Cost is more reliable (objectively verifiable)

Question 15

Compare principles to rules, including their respective advantages:

Answer 15

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