AIAF 114 Chapter 1 Exam Questions and Answers| New Update with 100% Correct Answers
Generally Accepted Accounting Principles (GAAP) A common set of accounting standards
and procedures used in the preparation of financial statements to ensure consistency of
presentation and reported results.
Statutory Accounting Principles (SAP) The accounting principles and practices that are
prescribed or permitted by an insurer's domiciliary state and that insurers must follow.
The five basic assertions of accounting are that the financial information is: complete;
valued correctly; exists; belongs to the company and is properly classified, described and
disclosed.
Qualitative accounting information should meet the following criteria: Understandability;
Relevance; Reliability; Comparability and consistency; Lack of bias; Cost-benefit effectiveness
Understandability to be understandable, information contained in financial reports must be
transparent, intelligible and clearly disclosed.
Relevance information must be timely, have predictive value, and provide useful feedback
about previously made decisions.
Reliability - criteria Representational faithfulness; Verifiability; Completeness; Neutrality
Comparability and Consistency must allow for comparisons between time periods and
among entities and therefore must be consistent.
Lack of Bias can be misleading; only useful is users understand the bias; consistently applied
across time periods, firms, or industries.
Actuarial Standards of Practice (ASOP) 21 only the actuary "be aware of the bias".
, Cost-Benefit Effectiveness cost of producing such information should be reasonable in
relation to the expected benefit of the information.
Comparing Relevance and Reliability a trade-off exists between the two; also affects the
valuation of difficult-to-estimate insurance liabilities.
Comparing Lack of Bias and Reliability conflict can arise between lack of bias and reliability
of information where uncertainty exists.
Accounting Frameworks Generally Accepted Accounting Principles; Regulatory/Supervisory
Accounting; Tax Accounting
Generally Accepted Accounting Principles GAAP for a broad range of users - investors,
creditors, owners
GAAP accounting typically focuses on value or performance of an organization as a going
concern.
SAP is for regulators interested in solvency regulation and may have more interest in runoff
values
Tax Accounting tax authorities may desire, demand, or be legally required to use their own
specialized accounting frameworks in order to calculate the tax owned by an entity.
Tax Accounting frameworks can be influenced by social engineering, public policy, political
or verifiability concerns.
Tax Accounting rules are based on statutory accounting with modification
Generally Accepted Accounting Principles (GAAP) A common set of accounting standards
and procedures used in the preparation of financial statements to ensure consistency of
presentation and reported results.
Statutory Accounting Principles (SAP) The accounting principles and practices that are
prescribed or permitted by an insurer's domiciliary state and that insurers must follow.
The five basic assertions of accounting are that the financial information is: complete;
valued correctly; exists; belongs to the company and is properly classified, described and
disclosed.
Qualitative accounting information should meet the following criteria: Understandability;
Relevance; Reliability; Comparability and consistency; Lack of bias; Cost-benefit effectiveness
Understandability to be understandable, information contained in financial reports must be
transparent, intelligible and clearly disclosed.
Relevance information must be timely, have predictive value, and provide useful feedback
about previously made decisions.
Reliability - criteria Representational faithfulness; Verifiability; Completeness; Neutrality
Comparability and Consistency must allow for comparisons between time periods and
among entities and therefore must be consistent.
Lack of Bias can be misleading; only useful is users understand the bias; consistently applied
across time periods, firms, or industries.
Actuarial Standards of Practice (ASOP) 21 only the actuary "be aware of the bias".
, Cost-Benefit Effectiveness cost of producing such information should be reasonable in
relation to the expected benefit of the information.
Comparing Relevance and Reliability a trade-off exists between the two; also affects the
valuation of difficult-to-estimate insurance liabilities.
Comparing Lack of Bias and Reliability conflict can arise between lack of bias and reliability
of information where uncertainty exists.
Accounting Frameworks Generally Accepted Accounting Principles; Regulatory/Supervisory
Accounting; Tax Accounting
Generally Accepted Accounting Principles GAAP for a broad range of users - investors,
creditors, owners
GAAP accounting typically focuses on value or performance of an organization as a going
concern.
SAP is for regulators interested in solvency regulation and may have more interest in runoff
values
Tax Accounting tax authorities may desire, demand, or be legally required to use their own
specialized accounting frameworks in order to calculate the tax owned by an entity.
Tax Accounting frameworks can be influenced by social engineering, public policy, political
or verifiability concerns.
Tax Accounting rules are based on statutory accounting with modification
