Abstract
Measurement represents one of the most important methodological elements of accounting because it affects the overall informative ability of financial statements. The chosen method of valuation affects not only the amount of assets and liabilities, but the size of costs and revenues of the entity as well; therefore it has a major impact on profit and solvency of insurance companies. Each accounting regulation - whether at national or supranational level - includes relatively thorough provisions related to valuation. In the Czech accounting system valuation is regulated by the Accounting law, which distinguishes between the initial valuation of assets and liabilities (valuation at the transaction date) and the subsequent valuation of assets and liabilities "at the end of the reporting date". However, the Czech definition of fair value at the national level is different from IFRS at the supranational level, which causes issues with reporting assets and liabilities of insurance companies. By 2015, a new IFRS is expected to be issued, dealing with insurance reporting issues, including "fair value". This new standard is expected to address current deficiencies in insurance reporting guidance.
Highlights
According to Accounting Act, fair value shall be applied for following balance sheet items: Securities, excluding securities held to maturity, bonds issued in primary offerings, which are not set for trading, securities representing subsidiaries or associates and securities issued by the entity; Derivates; Financial placement and technical provisions for the entities that provide insurance or securing activity according to specific legislation, except for public health insurance; Assets and liabilities in case of conversion of the companies or cooperatives with the exception of the change in legal form or in other cases according to special legislation, which requires fair value valuation in accordance with special legislation; Part of the assets and liabilities hedged by derivatives
Other assets reported in the financial statements of commercial insurance companies – tangible, intangible fixed assets and inventory, that are not financial placement, are at the reporting date valuated in historical costs
There are some problems in implementation of fair value measurement upon balance sheet day in the Czech Republic
Summary
Measurement represents one of the most important methodological elements of accounting because it affects the overall informative ability of financial statements. Because being ahead of the curve is one of the secrets of success in business, it is good news that fair value has become the generalized new accounting regime, which can affect every entity and every process. This includes: banks as financial intermediaries; insurers as providers of basic social services; and the distribution of financial risks among economic agents. The Czech measurement system regulated in Accounting Act distinguishes between the initial and the subsequent measurement of assets and liabilities. European Financial and Accounting Journal, 2011, vol 6, no. 3, pp. 92-102
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