Publication Date


Document Type


First Advisor

Cheng, Philip C., 1925-

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Accountancy


Insurance; Life--Accounting


Life insurance company financial statements differ materially from those of ordinary commercial enterprises. The financial reports of ordinary commercial enterprises are based on generally accepted, accounting principles. On the other hand, state insurance commissions prescribe which accounting practices are to be followed by insurance companies. These practices are based on liquidity rather than on the going concern concept and are not in agreement with generally accepted accounting principles. Financial statements of life insurance companies emphasize solvency and the policyholders’ protection and deprive stockholders of sufficient investment data. This lack of information prevents the stockholder or prospective stockholder from making an intelligent decision to buy, sell, or hold the stock of a particular insurance company. He is also hampered in his efforts to compare this investment with investments in other commercial enterprises because of a lack of comparability. The problem is further complicated by state regulations requiring all published, financial reports to comply with those required, for state reporting. In a period of increasing government intervention in business, the future implications of this problem cannot be underestimated. The purpose of this study was to determine whether generally accepted accounting principles can and should be applied to life insurance companies. Library research primarily provided the data for this study. In addition, personal interviews with selected insurance executives and public accountants were conducted. This study concluded that life insurance company financial statements do not provide stockholders or policyholders with adequate information. This is due to state regulations which require the use of accounting practices which are designed to protect policyholders and are not in agreement with generally accepted accounting principles. Financial accounting must satisfy the informational needs of all financial statement users and not merely the biased needs of a particular segment of those users. Of paramount importance would be two separate schedules that should be included as follows: (l) A schedule reconciling reported net income (or net loss) as shown in the income statement to reflect the use of generally accepted accounting principles, and (2) A schedule reconciling reported earned surplus as shown on the balance sheet to adjust for generally accepted accounting principles. Accounting principles that are generally accepted can and should be applied to all organizations whether regulated or not. Thus, state life insurance laws and regulations should be changed to allow financial statements to be prepared and published based on generally accepted accounting principles. Financial accounting as a discipline and field of knowledge is in a dynamic state. The accounting profession must be ever alert to the informational needs of all interested groups. If accounting is to continue at its current professional level, these challenges must be met and overcome. It is only by this means that accounting can avoid the strait jacket of additional government regulation.


Includes bibliographical references.


v, 73 pages




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