Unfinished Accounting Issues: Incorporating Fair Value and Prudence in Accounting Theory

Abstract

The International Accounting Standards Board (IASB) is introducing new International Financial Reporting Standards (IFRS) which aim to make financial statements more useful. The process has generated considerable debate. This paper is a contribution to the debate, in the particular context of insurance accounting, and attempts to provide a coherent framework for accounting theory which makes a clear distinction between retrospective statements required for administrative accountability, fair value for current market transactions and to measure value creation, and a prospective prudence required to protect policyholders, depositors and other creditors. It is argued that the IASB's founding purpose to provide a single set of accounts is therefore incoherent; different purposes require different numbers. This also implies that fair value accounts should attempt to value intangible assets. In this context, actuarial analyses of surplus would greatly assist in measuring whether model assumptions are appropriate.

Lowering acquisition costs with a commission cap? Evidence from the German private health insurance market

“…204-243). For example, insurers can use surpluses from cost reductions or the old-age provisions via the Zillmer method by using a net premium reserve method(Asher 2006).…”