Regulations on Compiling Reports of Solvency of Insurance Companies No.13: Quarterly Report (Draft for Comment)
VI. About Compilation of Quarterly Report
(I) Selection of “Discrete View”
There are two types of theoretic basis for compiling interim financial report: discrete view and integral view. Discrete view regards every interim as a discrete accounting period and accounting polices, principle of confirmation and measurement adopted in compiling interim financial report are consistent with that of annual report, and so are applied accounting estimate, cost distribution and treatment of accrued items, etc. While integral view regards every interim as part of annual accounting period, an integral part of the entire accounting year, but not as discrete accounting period; accounting estimate, cost distribution and treatments of various deferrals and accrued items applied in interim financial report shall take into account cost and expenses to be incurred in the whole year, which shall be distributed to various interims based on annual estimated activity level.
After researches, we reckon that theoretic basis for compiling quarterly report of solvency shall adopt “discrete view”. There are six points below serving as reasons: firstly, solvency report reveals company’s solvency status at certain time point and discrete view regarding quarter as discrete accounting period is consistent with ideas of insurance surveillance and management; secondly, deferrals and withdrawals in advance of expenses in integral view make confirmed assets and liabilities inconsistent with definitions of admitted assets and ranking liabilities; thirdly, taking into account cost and expenses of the entire year also brings unnecessary troubles to accounting measurement; fourthly, “integral view” is more dependent on professional judgment and estimate by accounting personnel, which is likely to lead to incomparability of company’s solvency reports; fifthly, it is consistent with provisions of enterprise accounting standards of our country, which is convenient for company to compile solvency report; sixthly, it is in compliance with methods adopted by most developed countries, which is helpful for international comparison.
(II) Requirements upon accounting estmate
In view of information requirements of timeliness of quarterly report, the company can properly simplify some accounting estimate covered in compiling quarterly report, such as test of devaluation preparation and stock-taking of inventory. However, these simplifications can not affect reliability and relativity of information of quarterly report, i.e. can not affect comprehension and assessment by users of quarterly report upon the company’s solvency at the end of the quarter. Therefore, companies shall master such basic principle in compiling quarterly report.
VII. About Format Requirements of Quarterly Report
Viewing from submitted quarterly reports, formats of various companies are not uniform at all, which brings many difficulties to read and analyze the reports. With information-based construction of solvency reports in the future, uniformity in contents and formats of solvency reports will become more important. Hence, this regulation gives detailed provisions upon formats of quarterly reports, including order of content arrangement, typesetting of page layout, specifications of characters and figures, formats of statements, character formats for compiling page numbers and binding requirements, etc., all these shall be strictly observed by companies.
VIII. About Effective Date
This regulation stipulates that provisions of this regulation upon contents of quarterly report go into effect commencing from compilation of report of the first quarter in 2007, and that upon formats of annual report go into effect commencing from compilation of report of the third quarter in 2007. That is to say, when compiling reports of the first and second quarters in 2007, insurance companies shall, in accordance with provisions from Article 3 to Article 14 of this regulation, disclose related information; nevertheless, formats for quarterly reports stated by provisions from Article 15 to Article 20 may not be accorded. While reports of the third quarter in 2007 and future quarterly reports of solvency thereafter shall be in compliance with provisions of this regulation both in contents and formats. Such provisions are set with a view to that currently insurance companies are undertaking enforcement of new accounting standards, the workload of compiling quarterly report in accordance with formats of this regulation would be comparatively larger if commencing from the first quarter of 2007; therefore, requirements of formats will go into effect commencing from compilation of report of the third quarter in 2007.