Question

going concern assumption concept explain in detail. 120-140 words

Answer 1

The authors challenge the traditxonal balance sheet concept of the solvency of a
general insurance company and put forward an emerging costs concept, which
enables the true nature of the assets and liabilities to be taken into account,
including their essential variability. Simulation is suggested as a powerful tool for
use in examining the financial strength of a company. A simulation model is then
used to explore the resilience of a company's financial position to a variety of
possible outcomes and to assess the probability that the assets will prove adequate
to meet the liabilities with or without an assumption of continuing new business.
This suggests the need for an appropriate asset margin assessed individually for
each company. The implications for the management and supervision of general
insurance companies are explored. The suggestion ~s made that the effectiveness
of supervision based on the balance sheet and a crude solvency margin require-
ment is hmlted. More responsibility should be placed on an actuary or other
suitably qualified professional individual to report on the overall financial
strength of the company, both to management and to the supervisory authorities.
KEYWORDS
Solvency; financial strength; asset margin; emerging costs; simulation;
professional report.
1. THE NATURE OF SOLVENCY
1.1. The financial posttion of a general insurance company is normally disclosed
through annual accounts for shareholders and through returns to relevant super-
visory authormes. Solvency is demonstrated by showing that the assets exceed the
liabilities. To a large degree the bases are chosen by the company. For supervisory
purposes it is not just a question of the assets exceeding the liabilities. The assets
must normally exceed the liabilities by a specified margin.
1.2. In life assurance there is a report by the actuary on the valuation of the
liabilities. By contrast the basis on which general insurance liabilities have been
assessed xs not usually stated. Furthermore, whereas in life assurance actuaries
take account of the assets and effectively advise on the total financial strength of
the company, there is no one with this role in a general insurance company. It
is frequently the case that no specific account is taken of the suitability of the
~Solvency Working Party of the General Insurance Study Group of the Insmute of Actuaries

Answer 2

Answer:

The concept of going concern is an underlying assumption in the preparation of financial statements, hence it is assumed that the entity has neither the intention, nor the need, to liquidate or curtail materially the scale of its operations.