The Defects Of Our New Standards Of Insurance Accounting And Improving Suggestions

Insurance as a special trade, it needs suitable accounting standards to check and calculate. There haven't been concrete standards of the insurance contract in the former accounting system in our country. With the opening of finance, it's necessary for our insurance accounting standards to convergent with international so that can suit for constant development of our insurance.So, the Ministry of Finance issuedandin February of 2006. (Call the two jointly"the new standards of insurance accounting" in the following and abbreviated as"new standards").The new standards have already begun to implemented on January 1, 2007. It's good for the insurance's standardizing management .Besides that, it helps our insurance to convergent with the international insurance. However, the new standards have some defects .So, this text mainly analyze its defects and put forward the corresponding improvement suggestions.There are four parts in this paper:First part is brief introduction of new standards. Firstly I explained the principle of the accounting calculation and the quality requirement of accounting information; Then ,I analyzed the issuing background of the new standards: With the development of insurance, the accounting system of the insurance has gone through four periods:,,and.Overly ,those principles can't meet the needs of development of the insurance. Because those norms pay attach to form while ignoring its value in practice. Besides that, those systems are different from International Accounting Standards, which hindered our insurance's development in the international market. Then, I sum up the main content of new standards and its improvement comparing to former insurance accounting system: It standardized the affirmation and classification criteria of insurance contract .In addition to that, new standards standardized the affirmation and calculation of premium income; It requires to test the sufficiency of capital reserve and disclose relevant information . New standards require the reinsurance and insurance account separately. It makes so many improvements, that it is a milestone of our insurance accounting. However, I don't think the new standards are perfect .for there are some defects in it. Considering the principle of accounting calculation, I discuss some drawbacks of the new standards chapter by chapter and put some suggestions, this is the importance of the paper.The second part main discuss it's difficult for the new standards to break the mixed insurance contract. Although new standards have introduced the concept of "insurance risk", and maintain to calculate the insured part and uninsured part separately .But the definition of "insurance risk" is fuzzier, none of concrete differentiation criterions, different understanding may cause to inconsistent accounting. New standards ignore the requirement of"great insurance risk", which makes it's impossible to break the mixed insurance contract. This may lead to the premium increase emptily, and inconsistent with international accounting principle. In order to break the mixed insurance contract easily, I propose using the international method to define"great insurance risk"clearly.The third part discuss the accounting choice of policy acquisition costs, it's the important part in the paper. There are main two methods: assets --liability method and deferred --matching method. The assets--liability method considers the policy acquisition costs as the current cost directly while the latter regards the policy acquisition costs as an item of deferred assets .Different choice matters the current profit of the insurance company directly. Because the policy acquisition costs aren't suit for the definition of assets, it's unreasonable to defer it in the whole insured period. However, take the policy acquisition costs in current profit and loss will obscure capital expenditure and profitability expenditure. Taking capital expenditure as profitability expenditure will underestimate assets and current income. It also violates the economics principle and it's unfavorable for accounting information users to understand enterprises'financial situation and management performance correctly. I think capitalizing policy acquisition costs accords with the basic law of insurance economics. And the accounting information can reflect the actual conditions of the insurance trade, which helps insurance's capital scale enlarging and participating in international competition. So, in the particular period that insurance in our country expands fast, we should allow the insurance company to choose the deferred method.The forth part discuss it's difficult forto avoid the overflowing of finite risk reinsurance. The new standards haven't been involving the finite risk reinsurance. It hasn't either required"reinsurance risk"or required the reinsurance contract strictly; this may cause the overflowing of finite risk reinsurance. So we should improve as soon as possible. We had better emphasize the"reinsurance risk" .Take the contract which transfers little reinsurance risk as deposit or financing.The last part is the simple analysis of other defects of the new standards. The new standards may increase the premiums receivable while the Premiums receivable is chronic illness of the non-life insurance company. The measurement mode about assets and liability of the new standards may produce accounting mismatch .The new standards has omitted the requirements of the disclosure of non-financial information and uncertain information, while non-financial information and uncertain information are essential to relevant policymakers. So I propose adopting joint method to calculate the premium of non-life insurance, Improving the measurement foundation of assets so that to lighten accounting mismatch .I suggest the new standards require insurance company disclose non-financial information and uncertain information.