Chapter 37: Accounting

Question 1

How should the published accounts of a provider be prepared?

Answer 1

On a GOING-CONCERN BASIS 
and to give 
a TRUE AND FAIR VIEW 
of the provider's 
- performance and
- financial position.

Question 2

5 Things to pay particular attention to when analysing accounts

Answer 2

• the statutory and accounting RULES that apply in the country concerned
• whether there have been any CHANGES in the accounting practice over the last year and what these changes are
• the BASIS used for the assets and the treatment used in the accounts for the realised and unrealised gains and losses. If assets are shown at market value, consider the effects on the asset values of changes in market conditions.
• occurrence of EXCEPTIONAL EVENTS
• the effects of the UNDERWRITING CYCLE on insurance companies.

Question 3

Why is it difficult for a provider to meet the consistency accounting principle?

Answer 3

Estimating provisions involves uncertainty and margins of error which will vary from year to year.

Question 4

5 Reasons why disclosure of information to beneficiaries, and also the provider / sponsor is important

Answer 4

• it may be a LEGISLATIVE REQUIREMENT
• helps ensure that the beneficiaries are not mislead
• disclosure helps providers as transparency information can encourage individuals to join and contribute to employer schemes
• a lack of disclosure can lead to future problems for providers, as it may lead to beneficiaries gaining false expectations of their future benefits
• disclosure helps increase the sponsor’s awareness of the financial significance of the benefit obligations that exist.

Question 5

Examples of information that may be disclosed

Answer 5

• benefit entitlement
• contribution obligations
• expense charges
• investment strategy
• risks involved
• entitlements in the event of insolvency

Question 6

When might information be disclosed?

Answer 6

• on entry
• at regular intervals
• once payments commence
• on request
  or a combination of these

Question 7

Across different countries, a number of different accounting standards exist for pension schemes.
These have a number of different common aims.
What are they?

Answer 7

• recongising the realistic cost of accruing benefits
• avoiding distortions resulting from contribution fluctuations
• consistency in the accounting treatment from year to year
• disclosure of appropriate amount and type of information

Question 8

Accounting standards may require that certain key bits of information be disclosed. These include

Answer 8

• ASSUMPTIONS and
• actuarial METHOD
  used

value of LIABILITIES accruing over the year
- increase in the past service liabilities

INVESTMENT RETURN achieved on the assets over the year

SURPLUS/DEFICIT
- & the change in the surplus/deficit over the year

• the BENEFIT COST over the year in respect of any directors
• MEMBERSHIP movements