CRITICAL REVIEW OF ACCOUNTING SYSTEM IN NIGERIA INSURANCE INDUSTRY (A Case Study Of Industrial And General Insurance Company Ltd)
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CRITICAL REVIEW OF ACCOUNTING SYSTEM
IN NIGERIA INSURANCE INDUSTRY (A Case Study Of Industrial And General Insurance
Company Ltd)
ABSTRACT
This study
will survey a critical review of the accounting system in Nigeria’s insurance
industry.
This study
as a case study is an attempt to review the problems of accounting system in
industrial and general insurance company limited. It has become necessary
because of proper understanding and correct treatment in various items in the
account. This study will make a fair contribution towards the understanding of
the treatment of various items by insurance companies.
In
collecting the data for the study, the researcher will made use of the tools
like structured and in structured interview and question will form primary
method data collection while secondary will consist annual report, accounts,
journals, insurance year book, and text books etc.
Finally, the
conclusion will be that though there are lack of proper understanding and
correct treatment of various items in the accountant of the insurance
companies, however, the problem can be solve if the researcher can bring to
light the difference in the treatment of various items by insurance companies
and its effect on intra and inter-company comparison.
Table Of
Contents
Title Page
Approval
Page
Dedication
Acknowledgment
Abstract
Table Of
Content
Chapter One
1.0
Introduction
1.1
Background Of Study
1.2
Statement Of Problem
1.3 Purpose
Of Study
1.4
Significance Of Study
1.5
Definition Of Terms
1.6 Scope
And Limitation
Chapter Two
2.0 The
Concept Of Accounting In The Insurance Industry (Igi)
2.1 History
Of Insurance Company (Igi)
2.2
Organization Of Insurance Company (Igi)
2.3 Purpose
Of Insurance Company (Igi)
2.4
Provision Of The Insurance Decree 1991
2.5 The
National Insurance Supervisory Board (Nisb)
2.6
Accounting Concept Ad Convention Used In Insurance Company (Igi)
2.7
Treatment Of Various Items In Insurance Company (Igi)
Chapter
Three
3.0 Research
Methodology
3.1 Source
Of Data
3.2
Population Characteristic
3.3 Nature
Of Data Analysis
3.4
Hypothesis Testing
3.5
Identification Of Variable
Chapter Four
4.0
Introduction
4.1 Analysis
Of General Characteristic Of Respondents
4.2 Analysis
Of Direct Respondents
4.3
Hypothesis Testing
Chapter Five
5.0 Summary
5.1
Implication Of The Summary
5.2
Recommendation
5.3
Conclusion
Bibliography
Letter Of
Respondent
Questionnaire
CHAPTER ONE
1.0
INTRODUCTION
Insurance
accounting as relates to insurance company is a distinct and specialized
account that is always referred to as “specialized Accounting” just like
taxation is a specialized area. Though it employees the general accounting
principles, concepts and conventions, there in need for a clear understanding
of its preparations.
In the days
of “T- forms” presentation of financial statements an insurance company account
could be easily recognized form the sides of the “T” to which income and
expenditure items are placed. They where reversed and therefore not in
conventional form. The convention was placing revenue items to the right of the
“T” insurance company revenue, profit and loess account had the revenue items
to the legit of the “T” and expenditure items to the right.
Nowadays,
the vertical forms of presentation are adopted and this peculiarity of reversal
of sides is no longer these.
However,
there are other features that distinguish accounting system in insurance
industry or company form other accounting system. There are:
i.
Requirement by law for remitting of quarterly and annual returns to central
Bank of Nigeria (CBN) and Nigerian insurance supervisory Board (NISB).
ii.
Prescription by law of the type and level of investment.
iii.
Requirement by law for the maintenance of margin of solvency.
iv.
Requirement by law for rendition of returns to the Nigerian insurance supper
story board (NISB) with stated deadline.
v.
Requirement by law of the maintenance of Reserves known as “TECHNICAL RESERVE”
Comprising of insurance fund, Reserves for outstanding losses, reserves for
incurred but not reported and contingency reserves.
All these
are in addition to rendition of the required returns to the corporate affaire
commission (CAC) being an incorporated company under or pursuant to the
companies and allied matters decree (CAMD) 1990.
From the
above, it can therefore be seen that without a proper understanding of
intricacies involved in both the interpretation of the decree as well as the
items that makes up insurance account and right treatment is accorded the
financial statement generated will not give a true and fair view of the
statement of affairs and of profit and loss for the period.
Having read
and studies about insurance industry, the researcher fact it worth caring out a
detailed researcher work in order to benefit those who have no accounting
orientation of formal training in accounting before. Also for the benefit of
students in higher institutions and reader alike.
1.1
BACKGROUND OF STUDY (INDUSTRIAL AND GENERAL INSURANCE COMPANY LIMITED (igi)
The
emergence of industrial and general insurance company Ltd (IGI) on Nigeria’s
insurance landscape of dynamism and innovation into insurance practice Nigeria.
With a carefully selected board of Directors comprising of distinguished and
reputable Nigeria’s
Who have
made their marks in their chosen fields likes Yakubu Gowon, Remi Olowode, Ola
O. Vincent, Apostle Hayfor I. Alile and many others.
From the
inception of the company, the company has a crop of highly skilled and
motivated company of today and the future. IGI has, within the 6 years of its
existence stamped it identify on the market as a leading professional insurance
company in the provision of the highest standard of financial protection and
risks management service.
In 1996 IGI
became the first private insurance company in Nigeria to hit the N1 Billion
market in premium income, and also the targets in terms of volume, and also the
targets in terms of volumes of business. IGI’s N500 million authorized share
capital of which N200 million is fully paid –up is also the biggest for any
private insurance company in the country. IGI’s computer backed under writing
and claims management systems, guarantee prompt and efficient services to
customers. The company’s reputation as a friendly insurance firm derives, in
part form the simply format and content of its policy documents which are
couched in simple language devoid of unnecessary technical and legal terms.
Today IGI
had become a leader not only in General insurance, but especially in the
specialized. Areas like oil, Energy, Engineering, Aviation, medical, insurance
and industrial risk management.
The giant
studies taken since inception reflect the result –oriented approach of the
company and the robust touch it has brought to bear on the practice of
insurance in Nigeria.
The
company’s commitments to quality services are total, as clients needs come
first at every point of services delivery.
Besides, the
culture at IGI is to make deliberate efforts to understand individual client’s
peculiar needs, to assess the risk which the client is exposed to and advice
accordingly. The company has also established an enviable reputation as the
foremost sports friendly insurance company in Nigerian.
1.2
STATEMENT OF PROBLEM
The growth
in the volume of transaction as well as the increase I the total number of
insurance companies in Nigeria make it important to have an adequate and
practical understanding of the various items and their treatment, in the
accounts as they relate to insurance company. Despite the role-played by the
industry in the economy, hence. There is needed to make research in the
problems facing the industry as regard accounting. These problems are the
following below:
i. Lack of
proper understanding and correct treatment of various items in the account.
ii. The
problem of computing unimpaired risk, outstanding losses incurred but not
reported and contingency reserves.
iii.
Treatment of investment income and commission.
iv. Non –
availability of accounting standard that is SAS/SSAP2/IAS: 1:
Disclosure
of accounting policies
v. The
problem of inadequate qualified staff to man important post.
vi.
Misinterpretation of the various aspects of the insurance Decree 1991
vii. Problem
of defining gross premium, net premium are their treatment in the accounts.
viii.
Inadequate on-the –job training for staff.
1.3 PURPOSE
OF STUDY
The purpose
of this research work is to find solution to the above-mentioned problems and
at the same time explain and illustrate some of the items so as to practically
assist staff in the account department of the industry. The purposes are:
i. To bring
to light the differences in the treatment of various items by insurance
companies and it effect on intra and inter-company comparisons.
ii. To
expose the need of having an accounting standard for insurance industry.
iii. To
bring to limelight, the mistakes in insurance company are financial reporting
and placing it on a solid platform.
iv. To
explain the various forms of computation and treatment of various forms of
reserve.
v. To asses
financial statement presentation in insurance industry and arrive at the
standard way of presenting financial statement.
vi. To
evaluate the various interpretations of gross, net premium and under writing
profit.
1.4
SIGNIFICANCE OF THE STUDY
The industry
keeps growing, which shows an increase in the public founds placed in another
person’s hands in form of premium. There is then the need for proper and
adequate reporting so that confidence in the industry can be established.
Capital market internalization distress in the economy and subsequent need for
merger ad acquisition as a means of survival calls for proper understanding as
well as treatment of items upon which the financial statement is based which
will be used for all these.
The
insurance Decree 1991 has a lot of stringent conditions that must be complied
with by the industry as it relates to the account which if not treated may cost
the industry move then expected.
The users of
financial statements are numerous hence if the preparation is fault, it becomes
misleading to the users and public at large. The industry also has a state in
the economic developments of a company performing such roles as institutional
investor, risk bearers, employer of labour as well as wealth creator.
For an
industry perfuming such roles enumerated above it is expedient to consider
preparation and presentation an almost importance and real value to the
industry.
1.5
DEFINITION OF TERMS
For easy
understanding some operational terms in the insurance accounting are hereby
defined
1. REVENUS
ACCOUNT: - This is used to determine the gross profit or loss in the connection
with trading result in insurance industry.
2. BALAANCE
SHEET: - A summary of financial statement of affairs as at a particular date.
3. CREDITOR:
- A company or an individual to whom something of monetary value is owned or
indebted to.
4. DEBITOR:
- A company or person who owes another something of monetary value to somebody.
5.
COMMISSION: - Charges to a person who act as an agent or brother, which is
normally based on premium.
6.
DEPRICIATION: - The proportion of a fixed asset that is written of through were
and tear in an accounting year.
7.
BROKERAGE: - This is commission paid to broker.
8. BROKER: -
A person who buys and sells share for others in the stock market.
9. OUT
STANDING CLAIM: - A summary of unsettled claims at the end of the financial
year.
10. PREMIUM:
- A charge for covering risks usually based on percentage of value insured.
11. UNEARNED
PREMIUM:- This is the portion of premium meant for the risk period not yet
expired.
12. CEDED
PREMIUM:- This is the portion of risk that is given to other insurance
companies. The percentage given in form f risk will be given as premium. This
is in form of Re-insurance.
1.6. SCOPE
AND LIMITATION
The project
is basically an overview of accounting system in insurance industry and as such
it will be limited to that it will involve visiting a couple of insurance
companies and general insurance company limited (IGI) to actually assess their
work and the preparation of their accounts.
The
envisaged limitation in this research work is that the account staff who may
fell that any information given them will be divulged and as such many not want
to give a fully direct and correct answer of responses to questions. The
researcher will also be limited by the financial constraint, which will hinder
the researcher to travel around for more information. Also the time constraint
and much work. To forestall this, the researcher will create a conductive atmosphere
and will explain the detailed purpose of the research work.
More also,
the researcher may not be able to consider each items in the accounts hence,
only the major items will be considered. The research is limited to the
accounting aspect of the insurance industry.
SUMMARY OF
OTHER CHAPTERS
For easy
exposition of the research, it is going to be divided into 5 chapters:
Chapter one
will contain the general introduction, background of the study, statement of
problem, purpose of study significance of the study, hypothesis data analysis,
methodology, scope and limitation of the study.
Chapter two
will base on literature review, origin of insurance company, organisation of
insurance company, purpose of insurance company, provision of the insurance
decree 1991, the accounting concept and conventions and treatment of various
items.
Chapter
three will be for research methodology, source of data (primary and secondary
sources), and questionnaire, design population of study and sampling size and
brief definition of analytical tools to be used in analyzing data collected.
Chapter
four, will be for analysis and presentation findings and test of hypothesis
Chapter five
will be for summary of findings, conclusion and recommendation.
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