Accountants and Actuaries Still Not In Step

Article Abstract:

Christopher Napier conducted a research study for the Institute of Chartered Accountants in England and Wales and concluded that any of the principal actuarial funding plans would be acceptable to employers and their accountants for pension funding. Actuarial techniques are not acceptable for accounting purposes, however. Different funds have different contribution rates, initially varying from ten to sixteen per cent of pay. Three funding plans are the major types - aggregate, discontinuance target and projected unit credit funding. The third is the theoretically correct accounting measure employed by Napier. But the first two are the most widely employed in the United Kingdom. The rates of contribution according to each method vary considerably. Aggregation of employees is acceptable, but aggregation of services conflicts with accrual accounting principals as it does not necessarily accumulate funds to pay pensions to retired employees during their working lifetimes.

United Kingdom, Compensation and benefits, Accounting, Pensions

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Finance Leasing - An Actuarial Approach

Article Abstract:

A lessor, an investor in leases, should examine and monitor his portfolio's performance. He must know how his leases are valued and treated on the balance sheet. A business economist uses a discounting approach and considers future rental income plus any realizable residual value. The accountant uses total receivable sums and subtracts the amount of future profit. The two methods will always give identical results, if the discounting rate stays the same. This overemphasizes historical cost. Net deferred tax should be included offsetting it against the lease asset. This is because leases are tax-based; it cannot be isolated from its tax effects. In evaluating a portfolio of leases, one must first set out all the cash flows from all the leases. Then, create a hypothetical portfolio of fixed interest investments. Then compare the two. This approach is adapted from the actuarial theory.

Contracts, Valuation

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Actuarial Concepts - A Guide for Accountants

Article Abstract:

Actuarial mathematics comprise two basic elements: discounted cash flow and probability. The discounting process is a mathematical recognition of the fact that money can be invested to earn interest. In a typical policy of insurance, the insurer associates with each future premium, a value which allows the probability that the policyholder will be alive and discounts that 'probable' income back to the present date. If the policy were intended to break-even, the premium would be set so that discounted value of future premiums was equal to the aggregate value of the liability output on death claim, maturity claim and expenses. The likelihood of the policyholder's death increases with his age. Actuarial reserves are made by a greater premium in the early years which will be called upon later to meet death claims in excess of premium income.

Methods, Economic policy, Probabilities, Probability theory

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