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Why is the accounting concept of consistency hard for insurers to meet?

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asked Nov 9, 2017 in BUS 4027W - Actuarial Risk Management by Rowan (4,010 points)

Why is it difficult to prepare the accounts of insurance companies in accordance with the consistency concept? Could you also please clarify the concept of consistency.

1 Answer

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answered Nov 22, 2017 by LStandaar (220 points)

The consistency concept usually refers to adopting the same accounting principles and methods from one accounting period to the next so that it is consistent over time. Sometimes this is difficult for insurance companies since there is some level of judgment and uncertainty which can change from one year to the next e.g. the basis used to calculate the liabilities reflected on the balance sheet.