Question 1

Discuss the measurement requirements for assets held to 'back general insurance liabilities'.

Accepted Answer

The measurement requirements for assets

Question 2

The pattern of revenue recognition required by AASB 1023 is:

Accepted Answer

A)  As premiums become due and payable, the revenue should be recognised according to accrual principles. 
B)  In accordance with the pattern of past receipts from policies of a similar type. 
C)  Based on the discounted cash flows expected to be associated with the policy, using past experience of policies that are in the same category. 
D)  Based on the pattern of the incidence of risk to which the insurer is exposed. 
A)  As premiums become due and payable, the revenue should be recognised according to accrual principles. 
B)  In accordance with the pattern of past receipts from policies of a similar type. 
C)  Based on the discounted cash flows expected to be associated with the policy, using past experience of policies that are in the same category. 
D)  Based on the pattern of the incidence of risk to which the insurer is exposed.

Question 3

A central requirement for financial statements in Australia is that they are:

Accepted Answer

A)  true and understandable. 
B)  true and fair. 
C)  true and reasonable. 
D)  true and correct. 
A)  true and understandable. 
B)  true and fair. 
C)  true and reasonable. 
D)  true and correct.

Question 4

Risk margins are determined on the basis of:

Accepted Answer

A)  the robustness of valuation models used. 
B)  past experience of the insurer and the industry. 
C)  the reliability and volume of data. 
D)  all of the given answers. 
A)  the robustness of valuation models used. 
B)  past experience of the insurer and the industry. 
C)  the reliability and volume of data. 
D)  all of the given answers.

Question 5

Which of the following is not a part of Justice Owen's recommendations to the Australian Accounting Standards Board with respect to AASB 1023 General Insurance Contracts?

Accepted Answer

A)  requirement that premium revenue and insurance liabilities be recognised on the commencement of a contract of insurance 
B)  requirement that, in estimating the present value of liabilities, future cash flows be discounted using high quality corporate bond rate 
C)  requirement that companies subject to the standard disclose a 10-year claims-development table that includes past estimates of claims on an undiscounted basis as well as the actual costs of settling claims 
D)  requirement that insurance liabilities be valued at a level of sufficiency of at least 75 per cent, as required by APRA's prudential standards 
A)  requirement that premium revenue and insurance liabilities be recognised on the commencement of a contract of insurance 
B)  requirement that, in estimating the present value of liabilities, future cash flows be discounted using high quality corporate bond rate 
C)  requirement that companies subject to the standard disclose a 10-year claims-development table that includes past estimates of claims on an undiscounted basis as well as the actual costs of settling claims 
D)  requirement that insurance liabilities be valued at a level of sufficiency of at least 75 per cent, as required by APRA's prudential standards

Question 6

The present value of claim liabilities will increase as the number of years they remain unsettled increases.This difference should be treated as an expense.

Accepted Answer

A) True 
 B)False

Question 7

What is an example of deferred acquisition costs and how does AASB 1023 require them to be treated?

Accepted Answer

A)  They include commission or brokerage paid to agents to attract business. They should be deferred as an asset and systematically amortised over the period of expected benefit. 
B)  They include brokerage and legal fees paid in advance of the purchase of land. They should be deferred and included in the cost of the land. 
C)  They include the purchase of client lists and policy details from agents. They should be capitalised as an intangible asset and revalued at balance date. 
D)  They include brokerage and legal fees paid in advance of the purchase of land. They should be deferred and included in the cost of the land and they include the purchase of client lists and policy details from agents. They should be capitalised as an intangible asset and revalued at balance date. 
A)  They include commission or brokerage paid to agents to attract business. They should be deferred as an asset and systematically amortised over the period of expected benefit. 
B)  They include brokerage and legal fees paid in advance of the purchase of land. They should be deferred and included in the cost of the land. 
C)  They include the purchase of client lists and policy details from agents. They should be capitalised as an intangible asset and revalued at balance date. 
D)  They include brokerage and legal fees paid in advance of the purchase of land. They should be deferred and included in the cost of the land and they include the purchase of client lists and policy details from agents. They should be capitalised as an intangible asset and revalued at balance date.

Question 8

Where an insurer reinsures some or its entire insurance portfolio,AASB 1023 requires that,with respect to the revenue received relating to the reinsured policies and the premiums ceded to the reinsurer:

Accepted Answer

A)  the revenue and premiums be set-off so that the net revenue only is recorded as this reflects the risk borne by the direct insurer. 
B)  the gross revenue be reflected in the accounts but a provision for reinsurance premiums be created and set-off against the policy revenue. 
C)  the net amount of premium (gross premium revenue less amounts transferred to the reinsurer) be recognised but a note disclosing both the gross amount of revenue and the premiums transferred to the reinsurer be provided. 
D)  the full amount of revenue received by the direct insurer be recognised and the portion of the premiums ceded to the reinsurer treated as an expense. 
A)  the revenue and premiums be set-off so that the net revenue only is recorded as this reflects the risk borne by the direct insurer. 
B)  the gross revenue be reflected in the accounts but a provision for reinsurance premiums be created and set-off against the policy revenue. 
C)  the net amount of premium (gross premium revenue less amounts transferred to the reinsurer) be recognised but a note disclosing both the gross amount of revenue and the premiums transferred to the reinsurer be provided. 
D)  the full amount of revenue received by the direct insurer be recognised and the portion of the premiums ceded to the reinsurer treated as an expense.

Question 9

Which of the following statements is not in accordance with AASB 1023 General Insurance Contracts when determining the outstanding claims liability?

Accepted Answer

A)  Premium that has not been recognised in the statement of comprehensive income is premium that is unearned and shall be recognised in the statement of financial position as an unearned premium liability. 
B)  The outstanding claims liability may be discounted for the time value of money using government bond rates that match the structure and term of the future obligations. 
C)  The expected future payments include: (a) unpaid reported claims; (b) claims incurred but not reported; (c) claims incurred but not enough reported; and (d) acquisition costs. 
D)  An outstanding claims liability shall be recognised in respect of direct business and reinsurance business and shall be measured as the central estimate of the present value of the expected future payments for claims incurred with an additional risk margin to allow for the inherent uncertainty in the central estimate. 
A)  Premium that has not been recognised in the statement of comprehensive income is premium that is unearned and shall be recognised in the statement of financial position as an unearned premium liability. 
B)  The outstanding claims liability may be discounted for the time value of money using government bond rates that match the structure and term of the future obligations. 
C)  The expected future payments include: (a) unpaid reported claims; (b) claims incurred but not reported; (c) claims incurred but not enough reported; and (d) acquisition costs. 
D)  An outstanding claims liability shall be recognised in respect of direct business and reinsurance business and shall be measured as the central estimate of the present value of the expected future payments for claims incurred with an additional risk margin to allow for the inherent uncertainty in the central estimate.

Question 10

The new version of AASB 1023 has gone some way to reducing the volatility in earnings but:

Accepted Answer

A)  Some volatility will remain with the required application of AASB 140. 
B)  This volatility will be completely removed when the IASB complete their Insurance Project. 
C)  The introduction of the requirement to apply AASB 9 will introduce further volatility to the accounts. 
D)  Some volatility will remain with the required application of AASB 140 and the introduction of the requirement to apply AASB 9 will introduce further volatility to the accounts. 
A)  Some volatility will remain with the required application of AASB 140. 
B)  This volatility will be completely removed when the IASB complete their Insurance Project. 
C)  The introduction of the requirement to apply AASB 9 will introduce further volatility to the accounts. 
D)  Some volatility will remain with the required application of AASB 140 and the introduction of the requirement to apply AASB 9 will introduce further volatility to the accounts.

Question 11

AASB 1023 specifies how classes of assets are to be measured.These requirements include that:

Accepted Answer

A)  recoveries receivable and operating assets be recorded at historical cost. 
B)  financial assets within the scope of AASB 9 be measured at depreciated net market value at balance date and recoveries receivable be at their nominal amount. 
C)  financial assets within the scope of AASB 9 be measured at fair value through profit and loss on first application of this standard, or on initial recognition. 
D)  deferred acquisition costs and recoveries receivable be measured at their discounted present value. 
A)  recoveries receivable and operating assets be recorded at historical cost. 
B)  financial assets within the scope of AASB 9 be measured at depreciated net market value at balance date and recoveries receivable be at their nominal amount. 
C)  financial assets within the scope of AASB 9 be measured at fair value through profit and loss on first application of this standard, or on initial recognition. 
D)  deferred acquisition costs and recoveries receivable be measured at their discounted present value.

Question 12

General insurance refers to the provision of insurance for losses associated with events such as fire,flood,storms and vehicle accidents.

Accepted Answer

A) True 
 B)False

Question 13

Which of AASB 1023's requirements has received the main criticism?

Accepted Answer

A)  the prohibition against netting reinsurance receivables against claims liabilities. 
B)  the requirement to mark investments to market and reflect the changes in the statement of comprehensive income. 
C)  the requirement to report premium revenues gross. 
D)  the requirement to discount future claim liabilities at the market-determined, risk-adjusted discount rate for the entity. 
A)  the prohibition against netting reinsurance receivables against claims liabilities. 
B)  the requirement to mark investments to market and reflect the changes in the statement of comprehensive income. 
C)  the requirement to report premium revenues gross. 
D)  the requirement to discount future claim liabilities at the market-determined, risk-adjusted discount rate for the entity.

Question 14

General insurance contracts and life insurance contracts are not within the scope AASB 4 Insurance Contracts.

Accepted Answer

A) True 
 B)False

Question 15

How is outstanding claims liability measured as prescribed in AASB 1023 General Insurance Contracts?

Accepted Answer

Outstanding claims liability is measured

Question 16

Explain the accounting treatment for revenues associated with unclosed business.How are they measured?

Accepted Answer

The accounting treatment for revenues as

Question 17

In AASB 1023 General Insurance Contracts all unclosed business is estimated and the premium relating to unclosed business included in premium revenue from the attachment date.

Accepted Answer

A) True 
 B)False

Question 18

AASB 1023 requires which discount rate to be applied to an outstanding claims liability?

Accepted Answer

A)  weighted average cost of financing for the particular insurer. 
B)  market-determined risk-adjusted rate of return for the particular insurer. 
C)  risk-free discount rates based on current observable and objective rates. 
D)  high quality corporate bond rates. 
A)  weighted average cost of financing for the particular insurer. 
B)  market-determined risk-adjusted rate of return for the particular insurer. 
C)  risk-free discount rates based on current observable and objective rates. 
D)  high quality corporate bond rates.

Question 19

Danger Ltd writes insurance policies to cover the risk of theft in central Brisbane.The policy premiums are expected to be received evenly over the year as they have evenly distributed due dates.Danger Ltd is aware that the risk of theft is 20 times higher in March and 15 times higher in July than in the other months of the year.The appropriate discount rate for Danger Ltd is 15%.If the total amount of insurance premiums to be received is $1 000 000,what is the pattern of revenue recognition in accordance with AASB 1023 (round amounts to the nearest dollar)?

Accepted Answer

A)  $72 467 per month 
B)  $200 000 in March, $150 000 in July, $54 167 in each other month 
C)  $83 333 per month. 
D)  $444 444 in March, $333 333 in July and $22 222 in each other month 
A)  $72 467 per month 
B)  $200 000 in March, $150 000 in July, $54 167 in each other month 
C)  $83 333 per month. 
D)  $444 444 in March, $333 333 in July and $22 222 in each other month

Question 20

In undertaking a liability adequacy test the present value of future claims must be compared with unearned premiums.

Accepted Answer

A) True 
 B)False

Exam 21: Accounting for General Insurance Contracts

Discuss the measurement requirements for assets held to 'back general insurance liabilities'.

The pattern of revenue recognition required by AASB 1023 is:

A central requirement for financial statements in Australia is that they are:

Risk margins are determined on the basis of:

Which of the following is not a part of Justice Owen's recommendations to the Australian Accounting Standards Board with respect to AASB 1023 General Insurance Contracts?

The present value of claim liabilities will increase as the number of years they remain unsettled increases.This difference should be treated as an expense.

What is an example of deferred acquisition costs and how does AASB 1023 require them to be treated?

Where an insurer reinsures some or its entire insurance portfolio,AASB 1023 requires that,with respect to the revenue received relating to the reinsured policies and the premiums ceded to the reinsurer:

Which of the following statements is not in accordance with AASB 1023 General Insurance Contracts when determining the outstanding claims liability?

The new version of AASB 1023 has gone some way to reducing the volatility in earnings but:

AASB 1023 specifies how classes of assets are to be measured.These requirements include that:

General insurance refers to the provision of insurance for losses associated with events such as fire,flood,storms and vehicle accidents.

Which of AASB 1023's requirements has received the main criticism?

General insurance contracts and life insurance contracts are not within the scope AASB 4 Insurance Contracts.

How is outstanding claims liability measured as prescribed in AASB 1023 General Insurance Contracts?

Explain the accounting treatment for revenues associated with unclosed business.How are they measured?

In AASB 1023 General Insurance Contracts all unclosed business is estimated and the premium relating to unclosed business included in premium revenue from the attachment date.

AASB 1023 requires which discount rate to be applied to an outstanding claims liability?

In undertaking a liability adequacy test the present value of future claims must be compared with unearned premiums.

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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