Insurance Entity Accounting Practices | CTFA Exam Prep

A

Insurance entities are required to follow certain accounting standards in the preparation of their financial statements. The purpose of these standards is to ensure that the financial statements provide an accurate representation of the entity's financial position and performance. The standards used for insurance companies are known as Statutory Accounting Practices (SAP).

In certain situations, an insurance entity may request permission from the domiciliary state regulatory authority to use a specific accounting practice in the preparation of its statutory financial statements. There could be various reasons behind this request, including:

A. The entity wishes to depart from Statutory Accounting Practices (SAP)

An insurance entity may wish to depart from SAP for a variety of reasons. For example, it may believe that the SAP accounting rules do not accurately reflect the economics of its business or do not provide a true picture of its financial performance. In such cases, the entity may request permission to use an alternative accounting practice that it believes better reflects its business operations.

B. The prescribed SAP address the accounting for transaction

SAP provides accounting standards for insurance entities that address the accounting treatment for different types of transactions, such as premium income, claims, investments, and expenses. However, in some cases, SAP may not provide guidance on a specific type of transaction or may not be clear on how to account for a certain type of transaction. In such cases, the insurance entity may request permission to use a specific accounting practice that it believes is appropriate for the particular transaction.

C. Both A & B

Therefore, the correct answer to the question is (C) Both A & B. An insurance entity may request permission from the domiciliary state regulatory authority to use a specific accounting practice in the preparation of its statutory financial statements if it wishes to depart from SAP or if SAP does not provide clear guidance on a specific type of transaction.