Question 1

At present there are three AASB standards related to insurance contracts:

Accepted Answer

A)  Phase I of the IASB Insurance Project will see these replaced by one standard. 
B)  Three standards are required to deal with complex issues such as the HIH collapse. 
C)  These standards cover life insurance, general insurance and motor vehicle insurance. 
D)  These standards reissued in July 2004 have been significantly altered based on recommendations from the HIH Royal Commission. 
A)  Phase I of the IASB Insurance Project will see these replaced by one standard. 
B)  Three standards are required to deal with complex issues such as the HIH collapse. 
C)  These standards cover life insurance, general insurance and motor vehicle insurance. 
D)  These standards reissued in July 2004 have been significantly altered based on recommendations from the HIH Royal Commission. D

Question 2

Hazard Ltd writes insurance policies to cover the risk of fire in northern New South Wales.The policy premiums are expected to be received evenly over the year as they have evenly distributed due dates.Hazard Ltd is aware that the fire risk is eight times greater in January,February and March than it is the rest of the year.The appropriate discount rate for Hazard Ltd is 12%.If the total amount of insurance premiums to be received is $50 000,what is the pattern of revenue recognition in accordance with AASB 1023 (round amounts to the nearest dollar)?

Accepted Answer

A)  $12 500 in January, February and March; $1389 each other month 
B)  $3720 per month 
C)  $12 121 in January, February and March; $1515 each other month 
D)  $4167 per month 
A)  $12 500 in January, February and March; $1389 each other month 
B)  $3720 per month 
C)  $12 121 in January, February and March; $1515 each other month 
D)  $4167 per month C

Question 3

Government charges should be included as part of the premium revenue if:

Accepted Answer

A)  they are levied on the insurer and incorporated into the insurance premium. 
B)  they are imposed on the insured party by the government. 
C)  the insurer is acting simply as a collector of levies and charges imposed by the government. 
D)  they are levied on the insurer and incorporated into the insurance premium and the insurer is acting simply as a collector of levies and charges imposed by the government. 
A)  they are levied on the insurer and incorporated into the insurance premium. 
B)  they are imposed on the insured party by the government. 
C)  the insurer is acting simply as a collector of levies and charges imposed by the government. 
D)  they are levied on the insurer and incorporated into the insurance premium and the insurer is acting simply as a collector of levies and charges imposed by the government. A

Question 4

The superseded version of AASB 1023 required that investments that are integral to the entity's general insurance activities should be:

Accepted Answer

A)  measured at net market value, with any changes being treated as an adjustment to equity through reserves. 
B)  measured at current replacement cost and depreciated so that the expense of the period is matched against premium revenue. 
C)  measured at net market value, with any changes treated as a revenue or expense of the period. 
D)  measured at the lower of cost and recoverable amount, with any amounts written off treated as an expense of the period. 
A)  measured at net market value, with any changes being treated as an adjustment to equity through reserves. 
B)  measured at current replacement cost and depreciated so that the expense of the period is matched against premium revenue. 
C)  measured at net market value, with any changes treated as a revenue or expense of the period. 
D)  measured at the lower of cost and recoverable amount, with any amounts written off treated as an expense of the period.

Question 5

Justice Owen in the HIH Royal Commission suggested that:

Accepted Answer

A)  Accounting standards which were unclear were primarily responsible for the collapse of HIH. 
B)  The inclusion of more non-accounting experience on the AASB could assist in the standard setting process. 
C)  That the true and fair view was no longer applicable to accounting reports. 
D)  Accounting standards which were unclear were primarily responsible for the collapse of HIH and that the true and fair view was no longer applicable to accounting reports. 
A)  Accounting standards which were unclear were primarily responsible for the collapse of HIH. 
B)  The inclusion of more non-accounting experience on the AASB could assist in the standard setting process. 
C)  That the true and fair view was no longer applicable to accounting reports. 
D)  Accounting standards which were unclear were primarily responsible for the collapse of HIH and that the true and fair view was no longer applicable to accounting reports.

Question 6

The attachment date is the date from which an insurer accepts risk for the insured under a contract or endorsement.

Accepted Answer

A) True 
 B)False

Question 7

Under AASB 1023 general insurers are to disclose the process used to determine which assets back general insurance liabilities.

Accepted Answer

A) True 
 B)False

Question 8

It was argued that the old version of AASB 1023 would inappropriately increase the volatility in earnings through:

Accepted Answer

A)  its requirement to recognise short-term changes in the net market value of investments in the statement of comprehensive income regardless of whether or not management intends to hold the investments long term. 
B)  the failure to net reinsurance reimbursements from claims so that a higher level of claims is reflected in the statement of comprehensive income despite the fact that management has mitigated against this. 
C)  the failure to recognise the value of intangible assets such as client lists that contribute to a steady flow of income for an insurer. 
D)  the failure to net reinsurance reimbursements from claims so that a higher level of claims is reflected in the statement of comprehensive income despite the fact that management has mitigated against this and the failure to recognise the value of intangible assets such as client lists that contribute to a steady flow of income for an insurer. 
A)  its requirement to recognise short-term changes in the net market value of investments in the statement of comprehensive income regardless of whether or not management intends to hold the investments long term. 
B)  the failure to net reinsurance reimbursements from claims so that a higher level of claims is reflected in the statement of comprehensive income despite the fact that management has mitigated against this. 
C)  the failure to recognise the value of intangible assets such as client lists that contribute to a steady flow of income for an insurer. 
D)  the failure to net reinsurance reimbursements from claims so that a higher level of claims is reflected in the statement of comprehensive income despite the fact that management has mitigated against this and the failure to recognise the value of intangible assets such as client lists that contribute to a steady flow of income for an insurer.

Question 9

What aspects of the current version of AASB 1023 will still give rise to earnings/price volatility that was dreaded by the industry when AASB 1023 was first introduced?

Accepted Answer

The current version of AASB 1023, which

Question 10

Outstanding claims should be recognised as liabilities,as should any insurance premiums received in advance but not yet earned.

Accepted Answer

A) True 
 B)False

Question 11

In undertaking a liquidity adequacy test,if the present value of future claims exceeds the unearned premium liability:

Accepted Answer

A)  The difference must be recorded as an asset under AASB 1023. 
B)  A further liability should be recorded to 'make up' the deficiency. 
C)  An expense should be recorded by initially writing down any related intangible assets. 
D)  A further liability should be recorded to 'make up' the deficiency and an expense should be recorded by initially writing down any related intangible assets and related deferred acquisition costs. 
A)  The difference must be recorded as an asset under AASB 1023. 
B)  A further liability should be recorded to 'make up' the deficiency. 
C)  An expense should be recorded by initially writing down any related intangible assets. 
D)  A further liability should be recorded to 'make up' the deficiency and an expense should be recorded by initially writing down any related intangible assets and related deferred acquisition costs.

Question 12

The direct insurer is required to use the gross method for premium recognition.

Accepted Answer

A) True 
 B)False

Question 13

Explain the rationale in AASB 1023 of selecting the pattern of the incidence of risk to recognise premium revenue.

Accepted Answer

AASB 1023 outlines the rationale for sel

Question 14

Some stakeholders have been critical of aspects of AASB 1023 that introduce volatility into earnings.Why would increased volatility be considered undesirable?

Accepted Answer

A)  Increased volatility is associated with unreliable service and may lead potential policy holders to choose another company. 
B)  It makes it more difficult for management to plan how to manage its profit levels. 
C)  Volatile earnings make it more difficult for employees to argue for pay increases. 
D)  Insurers may be put into technical default on contractual clauses relating to things such as debt covenants. 
A)  Increased volatility is associated with unreliable service and may lead potential policy holders to choose another company. 
B)  It makes it more difficult for management to plan how to manage its profit levels. 
C)  Volatile earnings make it more difficult for employees to argue for pay increases. 
D)  Insurers may be put into technical default on contractual clauses relating to things such as debt covenants.

Question 15

The financial statements shall disclose in relation to the outstanding claims liability the component related to the risk margin.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following are considered expenses arising from insurance contracts?

Accepted Answer

A)  direct claims expense 
B)  reinsurance claims expense 
C)  deferred acquisition costs 
D)  direct claims expense and reinsurance claims expense 
A)  direct claims expense 
B)  reinsurance claims expense 
C)  deferred acquisition costs 
D)  direct claims expense and reinsurance claims expense

Question 17

The reason provided for discounting liabilities for future claims is that the liability represents the amount which,if set aside as at the reporting date,would accumulate to the amount of the claims as they are expected to fall due.

Accepted Answer

A) True 
 B)False

Question 18

Discuss the steps required to apply the liability adequacy tests to general insurers.How does this initiative that resulted from the HIH Royal Commission assist in avoiding another HIH collapse?

Accepted Answer

The liability adequacy test is a crucial

Question 19

Discuss the disclosure requirements for the statement of comprehensive income.

Accepted Answer

The disclosure requirements for the stat

Question 20

Property,plant and equipment that is within the scope of AASB 116 and backs general insurance liabilities,should be measured at:

Accepted Answer

A)  depreciated historical cost. 
B)  net replacement cost. 
C)  recoverable amount. 
D)  None of the given answers are correct. 
A)  depreciated historical cost. 
B)  net replacement cost. 
C)  recoverable amount. 
D)  None of the given answers are correct.

Exam 21: Accounting for General Insurance Contracts

At present there are three AASB standards related to insurance contracts:

Government charges should be included as part of the premium revenue if:

The superseded version of AASB 1023 required that investments that are integral to the entity's general insurance activities should be:

Justice Owen in the HIH Royal Commission suggested that:

The attachment date is the date from which an insurer accepts risk for the insured under a contract or endorsement.

Under AASB 1023 general insurers are to disclose the process used to determine which assets back general insurance liabilities.

It was argued that the old version of AASB 1023 would inappropriately increase the volatility in earnings through:

What aspects of the current version of AASB 1023 will still give rise to earnings/price volatility that was dreaded by the industry when AASB 1023 was first introduced?

Outstanding claims should be recognised as liabilities,as should any insurance premiums received in advance but not yet earned.

In undertaking a liquidity adequacy test,if the present value of future claims exceeds the unearned premium liability:

The direct insurer is required to use the gross method for premium recognition.

Explain the rationale in AASB 1023 of selecting the pattern of the incidence of risk to recognise premium revenue.

Some stakeholders have been critical of aspects of AASB 1023 that introduce volatility into earnings.Why would increased volatility be considered undesirable?

The financial statements shall disclose in relation to the outstanding claims liability the component related to the risk margin.

Which of the following are considered expenses arising from insurance contracts?

The reason provided for discounting liabilities for future claims is that the liability represents the amount which,if set aside as at the reporting date,would accumulate to the amount of the claims as they are expected to fall due.

Discuss the steps required to apply the liability adequacy tests to general insurers.How does this initiative that resulted from the HIH Royal Commission assist in avoiding another HIH collapse?

Discuss the disclosure requirements for the statement of comprehensive income.

Property,plant and equipment that is within the scope of AASB 116 and backs general insurance liabilities,should be measured at:

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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