Some Stakeholders Have Been Critical of Aspects of AASB 1023

question 33

Multiple Choice

Some stakeholders have been critical of aspects of AASB 1023 that introduce volatility into earnings.Why would increased volatility be considered undesirable?

• A) Increased volatility is associated with unreliable service and may lead potential policy holders to choose another company.
• B) It makes it more difficult for management to plan how to manage its profit levels.
• C) Volatile earnings make it more difficult for employees to argue for pay increases.
• D) Insurers may be put into technical default on contractual clauses relating to things such as debt covenants.
• E) None of the given answers.

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Definitions:

Present Value

The present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Interest

The cost of borrowing money, typically expressed as a percentage rate over the period of the loan, or the return earned on investments.

Annual Interest

The amount of interest paid or earned over one year, often expressed as a percentage of the principal.

Blown Fuse Indicators

Devices that provide a visual or electronic signal indicating that a fuse has interrupted the circuit it protects due to an overcurrent condition.