The Application Of Accounting Principles In Some Selected Insurance Companies
The purpose of this research work was to determine the application of accounting principles in insurance companies. The limitations that prevent their proper application and whether insurance accounts are in conformity with the generally accepted accounting principles.
Data were collected from respondents mainly accountant and managers from different insurance companies in Onitsha through personal interview.
However, the outcomes showed that the accounting principles adopted by insurance companies and the same from the ideal principles. Although there are some branches of insurance companies that do not have a branch accountant, these branch will only forward their cash book to head office account.
Some insurance companies suggested recommendations on home accounting problems encountered. It is the researchers believe that if the recommendation given in chapter three of this study where actually followed, the will help in promoting the insurance business in Nigeria.
1.1 Background Of Study
Accounting is very essential in every profit making or that has economic resources such as money, machinery and building. While it has been called the language of business, it has served as a language to provide financial information about non-profit oriental business organization such as churches, government, charities, hospital, club etc.
In addition, one role or obligations in life as a manager, politician, investor, and student he will find the knowledge of accounting as one of his needs. Many people have try to answer two important questions about organization such as; how will if it doing a given period and where does the organization stand on a given day. Nevertheless, accounting aids in answering these question by showing where and when money has been spent and how committed it has been made by evaluating performance and indicating the financial implication of choosing ones plan versus another.
The accounting practices are governed by many concepts and principles. The rules that govern how accountant measure process and communicate financial information fall under the heading “General Acceptance Principles (GAAP). Managers and accountants of different insurance companies like National Insurance Corporation of Nigeria (NICON), Nigeria view as regard to this problem study. Insurance companies apply all these rules and ethics that are used in accounting and they equally keep reciept and payment accounts, cashbook, bank reconciliation statement, balance sheet etc. Although some companies that don’t keep their accounts with the central bank of Nigeria (CBN) measuring that they have registered with the registrar of companies and not recognized to be existence yet they operate.
Ikoku defines insurance business as an investment that protects the insured from natural and man made disaster for which the essence is to be place the insured on the position he was immediately before the less while legend defines insurance as a transfer of risk by the insured to the insurer for a consideration called premium.
However, Horngre et al defined accounting as “the system that measure business activities, processes that information into report and communicates these findings to decision maker”.
Ikoku went further to classify insurance business into life insurance and non-life insurance business.
(General Insurance Business) while life insurance (assurance) companies are subdivided into two classes namely proprietary companies and mutual companies. Non-life insurance businesses are categorized into five accident, motor vehicles, workmen’s compensation, marine, aviation and transport and miscellaneous insurance business.
After this point, one can be justified to asset that the proper functioning of the accounting aspect of an organization is dependent on how well the accounting principles are being applied. Therefore, the proper applications of accounting principles are important to insurance companies. Policyholders funds are made up of premium received on all policies. In this opinion, Jegede said that prudent management of this fund are vital in order to prevent its diversion into irrelevant areas thereby having in adequate cash to settle claims promptly.
The need therefore is to curb this diversion informed xxx idea of accounting. This can only be effective if the principles of accounting are applied to the later.
1.2 Statement Of Problem
In managing the resources of the public, the accountant has to achieve to certain basic laid down rules. As mentioned earlier these rules are referred to as accounting principle and concepts.
If the financial records are not straightly, there will be bound to be total financial break down in the organization. Lack of proper accounting is one of the factors that precipitate the incidence of acquisition mergers, takeovers and even failures in the financial industry in recent times.
Against this background, the researchers wishes to address this work to the following:
- What are the accounting procedures in insurance companies
- Are the procedures adequate or inadequate?
- Are they in companies with the generally accepted accounting principles?
1.3 Objectives Of Study
The dubious and fraudulent economic events that manifest itself in Nigeria business environment brings the need for careful and prudent management of financial transaction in order to ensure economic survival and growth.
For this reason, the researcher would intend to form on the following:
- To determine the accounting principles
- To identify the statutory provisions of insurance companies account
- To show the generally accepted accounting principles can be applied.
- To receive the application of accounting principles in selected insurance companies.
1.4 Scope Of The Study
This work is only limited to the extent to which some certain accounting principles are being put in to application in insurance companies. In other words, there is an attempt to restrict this work within the boundary of usage of accounting principles and techniques in carrying the functions of insurance operations.
The scope of the work is also limited to the far selected insurance companies in Enugu state, which are used as case studies.
1.5 Definition Of Terms
This can be defined as the payment of a sum of money by one person to another on the understanding on specified circumstances, the second person will make good loss suffered by the first person.
2. Insurance Policy:
This is a written contract or agreement between a person and an insurance company.
Is a person who registers into an insurance company so that he/she will receive money, if their property, ear, health etc get damage or stolen.
Is a person or company that provides people with insurance.
This can be defined as the art of recording classifying and summarizing, analyzing, interpreting and reporting on the financial transaction and position of an organization to interested person or bodies.
A person who is responsible for directing, controlling and co-coordinating the work of the book-keeping staff and also it is duty of an accountant to prepare periodical accounts like trading profit and loss account etc.
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