TAILIEUCHUNG - Accounting Concepts for the Actuary By Ralph S. Blanchard III, FCAS, MAAA

This issue also comes up with the valuation of difficult to estimate insurance liabilities. While a value may be estimable by an actuary, how reliable is that estimate? Can the user depend on that value, or could the user instead be materially misled by relying on that value? If a range of estimates could be produced, but only the low end of the possible valuation range could be reliably determined, booking the low end of the range may pro- duce a reliable estimate but how relevant would it be? Would more disclosure be required to make the. | Accounting Concepts for the Actuary By Ralph S. Blanchard III FCAS MAAA June 2003 CAS Study Note Introduction This article s purpose is to give an overview of accounting concepts and issues relevant to the actuary. To do this it is divided into the following sections Purpose of accounting Types of accounting Principal financial statements Sources of accounting rules Selected accounting concepts Common accounts for insurance companies I. Purpose of Accounting The purpose of accounting is generally not to provide the answer or decision for the user. It is to provide information to the user. The user is then free to perform their own analysis on this information so as to arrive at their own economic decision based on the information. Various accounting standard setters have developed criteria for such accounting informa-tion1. These criteria vary slightly by standard setting body but generally include the concepts listed below. Accounting information should be Understandable Relevant Reliable Comparable and Consistent across time entities industries Unbiased Cost-benefit effective Understandable Accounting information should be readily understandable to the intended users of the information. Note that this is a function of both the intended users and the intended uses of the information. Accounting systems that define either the users or uses narrowly may justify more complex information requirements and standards. Accounting systems that envision a broad body of users and or uses would tend towards less complexity in published information and standards. 1 For the International Accounting Standards Board IASB such criteria are listed in the Framework for the Preparation and Presentation of Financial Statements the IASB Framework . In the United States the underlying criteria are found in the Financial Accounting Standards Board FASB Statements of Financial Accounting Concepts SFAC . 1 There is typically the belief that for information to be understandable information

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