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Financial Reporting (Module 1) Exam
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_________________ is a system or set of rules and methods for collecting, processing, reporting, and monitoring financial info about a company. - - - correct answer ✅Accounting Closely related to accounting is ____________ reporting, which is the process of presenting financial info about a company's financial position, operating performance, and flow of funds into and out of a company. - - - correct answer ✅financial The accounting function consists of processes and activities that help answer 5 key business questions: - - - correct answer ✅1) What does the company own?
- What does the company owe?
- What has the company retained?
- What has the company earned?
- What has the company spent? A __________ transaction is a transaction to which a company must assign an objective monetary value, whether the impact on
Financial Reporting (Module 1) Exam
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the company is large or small, actual or expected. - - - correct answer ✅business _____________ is a company's ability to meet its financial obligations when they become due. - - - correct answer ✅Solvency _______________ is the overall degree of success a company has in generating positive returns for its owners, including the company's ability to generate profits and increase the value of the company. - -
correct answer ✅Profitability Internal users of a company's accounting info include the company's (list 3): - - - correct answer ✅1) employees
- directors
- officers A company's internal users typically have a __________ financial interest in the company, which means they can gain or lose money
Financial Reporting (Module 1) Exam
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- Stockholders
- Agents
- Reinsurers
- Creditors External users who have an ___________ financial interest in a company's financial info are generally seeking a company's financial info on behalf of others. - - - correct answer ✅indirect Ex: competing companies, external auditors, federal agencies, state insurance depts, independent rating agencies, tax authorities __________ insurance depts play a particularly important role as external users of a company's financial info: they evaluate the company's financial info to ensure that it will be able to pay its benefit obligations, which may arise decades into the future. - - - correct answer ✅State True or False:
Financial Reporting (Module 1) Exam
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Sometimes an individual or entity is both an internal and external user of an insurer's financial info. - - - correct answer ✅True Ex: Insurance company employees may also be policyowners, insureds, or stockholders. An external user of an insurer's financial info may have a direct and an indirect financial interest to the insurer. An independent rating agency has assigned a rating to Sundog Life Insurance Company. This rating agency is an example of an (internal/external) user of Sundog's financial info, and the agency has (a direct/an indirect) financial interest in Sundog's performance. - - - correct answer ✅external an indirect _____________ accounting is the field of accounting that focuses primarily on reporting a company's financial info to meet the needs
Financial Reporting (Module 1) Exam
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For our purposes, _______________ standards are guidelines or rules that describe how business transactions should be measured, presented, and disclosed in financial statements. - - - correct answer ✅accounting For US life insurers, what are 3 important accounting standards associated with financial accounting? - - - correct answer ✅1) Generally accepted accounting principles (GAAP)
- Statutory accounting principles (SAP)
- IFRS standards True or False: Many US insurers currently prepare 2 sets of financial statements. One set based on GAAP and another based on SAP. - - - correct answer ✅True
Financial Reporting (Module 1) Exam
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_______________ accepted accounting principles (GAAP) are a set of financial accounting standards, conventions, and rules that all publicly traded companies must follow when summarizing transactions and preparing their financial statements. - - - correct answer ✅Generally A ____________ traded company is a company whose stocks or bonds are offered for sale to the public. - - - correct answer ✅publicly GAAP focuses on a company's ______________. - - - correct answer ✅profitability In the US, an important report prepared using GAAP is the ___________ Report, which is a document that a company's management sends to interested parties to explain the company's financial performance during the past year. - - - correct answer ✅Annual
Financial Reporting (Module 1) Exam
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_______________ accounting is the field of accounting that focuses primarily on identifying, measuring, analyzing, and communicating financial info to a company's internal users, particularly company managers, so that they can decide how to best use the company's resources. - - - correct answer ✅Management Management accounting focuses on planning the company's ________________ performance. - - - correct answer ✅future True or False: Financial accounting is subject to specific accounting standards - such as GAAP, SAP, and IFRS - whereas management accounting is not. - - - correct answer ✅True True or False:
Financial Reporting (Module 1) Exam
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Management accounting is required by law. - - - correct answer ✅False Accountants who work in _________ accounting are company employees who prepare financial accounting reports and statements for the company's external users, as well as management accounting reports for the company's internal users. -
correct answer ✅private The head of a company's accounting function is typically the ________________ or comptroller. - - - correct answer ✅controller Although the controller usually reports to the company's ________, reporting relationships among the controller and other company officers and employees vary among companies. - - - correct answer ✅CFO In the US, accountants who work in ________ accounting generally earn the professional accounting credential known as the Certified
Financial Reporting (Module 1) Exam
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SEC holds the legal authority to prescribe the accounting principles
- in this case, GAAP - that __________ companies use. - - - correct answer ✅public All publicly traded companies, including _________ insurers, are subject to SEC regulation. - - - correct answer ✅stock
- An insurer that sells ___________ products is subject to SEC regulation.
- Does this include mutual insurers and fraternal insurers that sell these products even though they aren't publicly traded stock companies? - - - correct answer ✅1) variable
- yes Insurers that are subject to SEC regulation must generally submit _________ financial statements to the SEC. - - - correct answer ✅GAAP
Financial Reporting (Module 1) Exam
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US mutual insurers and fraternal insurers that sell variable products can submit _____________ financial statements to the SEC. - - - correct answer ✅statutory The primary role of the Financial Accounting Standards Board (FASB) is to establish and promote the use of __________. - - - correct answer ✅GAAP As a result of several high-profile accounting scandals in the early 2000s, Congress passed the US federal law known as the ________________-____________ Act of 2002. - - - correct answer ✅Sarbanes-Oxley The Sarbanes-Oxley Act of 2002 (SOX) requires public companies to take specific precautions to prevent ___________ behavior on the part of management and the company's external auditors. - - - correct answer ✅fraudulent SOX established the Public Company Auditing Oversight Board (PCAOB) that sets the auditing standards for external auditors of public companies.
Financial Reporting (Module 1) Exam
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The Insurance Regulatory _____________ System (IRIS) is a collection of financial tools and databases designed to help state insurance regulators evaluate the financial condition of insurers that operate in their states. - - - correct answer ✅Information The goal of IRIS is to enable regulators to allocate resources to those insurers in greatest ________ of regulatory attention. - - - correct answer ✅need IRIS consists of 2 phases:
- the ___________ phase, which features a tool known as the IRIS ratio application
- the ___________ phase, in which a group of financial examiners and analysts works together on an analyst team - - - correct answer ✅1) statistical
- analytical During the statistical phase, the IRIS ratio application extracts data from each insurer's electronically filed Annual ______________ and
Financial Reporting (Module 1) Exam
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automatically calculates the results of 12 financial ratios for each insurers. - - - correct answer ✅Statement In the analytical phase, the analyst team evaluates the IRIS ratio results of specified insurance companies. After reviewing the results, the analyst team designates certain insurers as:
- Level _____
- Level _____
- Reviewed, no ________ - - - correct answer ✅1) A
- B
- level Level _____ means that state regulators should give this insurer the highest priority in the review process. - - - correct answer ✅A
Financial Reporting (Module 1) Exam
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Because risk-based capital is the minimum threshold of capital required, insurance companies aim for a significantly ___________ amount of capital and surplus - in effect, a safety cushion - than is necessary to satisfy regulatory requirements. - - - correct answer ✅higher A financial __________ examination is an onsite regulatory examination of an insurer that is carried out by 1 or more state insurance depts and is designed to identify and monitor any threats to the insurer's solvency. - - - correct answer ✅condition In most US states, each insurer domiciled in the state must undergo a financial condition examination once every 3 to ___ years by the state insurance department. - - - correct answer ✅ 5 In an _____ Risk and Solvency Assessment (ORSA), an insurer conducts an internal assessment of the risks associated with its current business plan and the adequacy of its capital resources to support those risks. - - - correct answer ✅Own
Financial Reporting (Module 1) Exam
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True or False: The ORSA includes a high-level summary of an insurer's risk management framework, as well as details on the insurer's process for assessing risks in both normal and stressed environments. - - - correct answer ✅True The NAIC typically requires insurers to undergo an ORSA on at least an __________ basis. - - - correct answer ✅annual In an ___________ examination, also known as a coordinated exam, examiners representing various states in the geographic zones in which the insurer is licensed participate in examining the insurer. - - - correct answer ✅association True or False:
