It Was Argued That the Old Version of AASB 1023

question 8

Multiple Choice

It was argued that the old version of AASB 1023 would inappropriately increase the volatility in earnings through:

• A) its requirement to recognise short-term changes in the net market value of investments in the statement of comprehensive income regardless of whether or not management intends to hold the investments long term.
• B) the failure to net reinsurance reimbursements from claims so that a higher level of claims is reflected in the statement of comprehensive income despite the fact that management has mitigated against this.
• C) the failure to recognise the value of intangible assets such as client lists that contribute to a steady flow of income for an insurer.
• D) the failure to net reinsurance reimbursements from claims so that a higher level of claims is reflected in the statement of comprehensive income despite the fact that management has mitigated against this and the failure to recognise the value of intangible assets such as client lists that contribute to a steady flow of income for an insurer.

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Definitions:

Retained Earnings

The portion of a company's profits kept in the business after dividends are paid, used for investment or debt repayment.

Financing Activities

Activities reported in the statement of cash flows that illustrate changes in the size and composition of the equity and borrowings of a company.

Bonds Issued

Long-term debt securities issued by corporations or governments to raise funds, promising to pay back with interest.

Statement of Cash Flows

A financial document summarizing the total cash inflows from operational activities and external investments a company gets, alongside the cash outflows for business operations and investments over a specific period.