Essay on Accounting Differences

This is the first 1,000 characters of 2490 words (9.96 pages) in the essay titled Accounting Differences

Accounting Differences

General Comments about the Insurance Industry
Insurance Companies generate revenues by selling insurance policies. These policies provide a known amount of revenue for an unknown amount of losses offsetting that revenue. This can make the matching principle difficult. Some of the potential losses can come years after the insurance policy was written and the premiums received. The liabilities for these future losses are estimated by actuaries and are subject to a certain amount of interpretation by management.
The accounting for the premium revenues is reflected in written vs. earned premium. Various statutory requirements are based on written premium, which is the amount of premium booked in a given accounting period. Earned premium is generally used for recognizing revenues for financial reporting. As insurance policies are written on an annual basis or longer, the premiums (revenues) are spread over the duration of the policy period even if the potential liability exceeds the policy period. The future liability is estimated and booked against the earned premiums. Some costs, however are not matched against this revenue, primarily commissions paid to the insurance agent that sold the policy. This expense is fully recognized at the time the premium is booked.
These effects can have both positive and negative implications. In an era of declining written premiums, revenue can actually increase and expenses should decrease because of the costs incurred a

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