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Essay / Research Paper Abstract
This 4 page paper looks at the way a public liability insurance policy should be accounted for under SFAS 5; whether the premiums are an expense, or whether the premiums, less the amount retained by the insurer, should be classified as a deposit and expensed as claims occur. Using a case study supplied by the student the theory is applied to a practical scenario. The bibliography cites 3 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TESFAS5pl.rtf
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Unformatted sample text from the term paper:
as an insurance policy, but should be treated as a deposit with the actual claims expensed. This is argued as the policy is based on the last five years premiums.
As analysts appear to be more conservative than auditors and managers when it comes to the assessment of the standard (Aharony and Dotan, 2004) this difference may be partly explained
by the approach adopted, but to assess the correct approach the standard and its applications needs to be assessed. The main consideration here is whether or not the public
liability can be accounted for as an insurance policy. Where the liability policy is seen as a pure insurance policy then the premiums need to be seen as expenses, to
do anything else may be seen as income smoothing, which is not allowed. The key element is to assess the way that this policy would be viewed under
SFAS 5. Under a traditional insurance policy there is no uncertainly, the company pays the insurance premium and for that they get the specified level of coverage. If there
are a lot of claims then it is likely that the premiums will rise for the following year, but there is no impact on the current, year, there will not
be an increase in the premiums if there are a lot of claims, nor will there be any adjustment on the amounts paid out. It is a contract argument and
the risk has been transferred to the insurer. However, there are different forms of insurance that a company can undertake, and SFAS makes it clear that there is a
difference between policies where the risk is transferred and policies where there is not a full transfer of risk. If there is not transfer of risk then it is clear
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