Current Accounting Practice

[mclureins]

Current Accounting Practice
The present shortcomings in trust account
management can be easily traced to the premium
invoice accounting. Premium
invoice accounting should be different from
that of a merchandise/service invoice. While
the journal entry of a merchandise/service invoice
creates assets in the seller’s balance sheet
and income in the P&L statement, a premium
invoice should generate just premium assets
and liabilities in the trust account ledger and
no income.
Insurance premium accounting requires a different
ledger of accounts (a Trust Ledger tm,
separate from the General Ledger) for the premium
invoice journal entry to create premium
assets and liability records. Only if such records
are created can agencies generate trust funds
balance sheets and report solvency. Placing
premium accounting records in the agency
general ledger is incompatible with the nature
of trust account financial management and
ultimately explains why agencies cannot currently
report premium financial solvency.
GL accounting is currently used throughout
the industry, although it is clearly inadequate
for premium funds management. Agency owners
and managers who bear legal responsibility
for the solvency of premium funds have been
long waiting for reliable financial tools to fulfill
their fiduciary obligations. Managing money
has never been easy. Managing premium funds
is exponentially more difficult due to the premium’s
earmarked nature and regulatory mandates

[apee705]

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[Rainmaker]

Run, don't walk, to a good SOX attorney.