THE CHARTERED

INSURANCE INSTITUTE

940
Finance and accounting
Objective: To develop in the candidate:
• a knowledge and understanding of the principles and practices of financial accounting;
• a knowledge and understanding of the principles and practices of management accounting;
• the ability to apply this knowledge to the business of insurance;
• a knowledge of taxation and the regulation of insurance;
• an understanding of the principles underlying insurers’ investment policies;
• the ability to apply knowledge and skills to practical situations;
• the ability to synthesise different aspects of the syllabus and apply them to given scenarios.
Notes: – discuss revenue accounts within the profit & loss account
– The syllabus will be based on English law and practice. of an insurance company;
– The April session will test the legal position as of 31st – discuss the rules which apply from EU and UK legislation.
August of the preceding year.
1.6 Notes to the accounts
– The October session will test the legal position as of 28th
February of the same year. Candidates should be able to
– discuss the statutory notes relating to the profit & loss
account, including:
1. Financial accounting • statutory requirements;
1.1 Principles and practice • Statement of Recommended Practice requirements;
Candidates should be able to – explain the requirements of the notes relating to the
– explain the principles, practice and implications of balance sheet summary.
financial accounting.
1.7 Format of cash flow statements
1.2 The financial statements Candidates should be able to
Candidates should be able to – discuss the format of cash flow statements;
– explain the relationship and interaction between the – apply this knowledge to the cash flow statements of UK
profit & loss account, the balance sheet and the cash insurance companies.
flow statement, with particular reference to insurance.

1.3 Preparation of statutory accounts

2. Users of accounts
Candidates should be able to 2.1 Stakeholders interested in accounting information
– discuss the framework and constraints within which Candidates should be able to
accounts are prepared under International
Accounting Standards; – identify the users of accounting information and what
may interest them;
– discuss current accounting standards and practices.
– describe the concept and operation of the distribution
of profits;
1.4 Format of balance sheets
– outline the use of credit rating agencies.
Candidates should be able to
– discuss the formats of balance sheets, including the 2.2 Interpretation of accounting figures
EU format;
Candidates should be able to
– apply this knowledge to the balance sheets of UK
insurance companies; – describe the various ways of making comparisons
and judgements;
– discuss the reasons for and effects of changes in capital
and reserves. – discuss accounts and management information and draw
conclusions from the information;
1.5 Format of profit & loss accounts – apply this knowledge practically.
Candidates should be able to
– discuss the format of profit & loss accounts;
– apply this knowledge to the profit & loss accounts of UK
insurance companies;

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© The Chartered Insurance Institute 2007
3. Management accounting 4.2 International Accounting Standards
Candidates should be able to
3.1 Scope and relationship with financial accounting – discuss the main provisions of the International
Candidates should be able to Accounting Standards;
– explain the scope of management accounting; – discuss the implications for the insurance industry.
– explain the relationship between management accounting
and financial accounting. 4.3 The solvency margin and statutory minimums
Candidates should be able to
3.2 Internal use of accounting information – discuss, in detail, the solvency margin, including:
Candidates should be able to • reasons for it;
– describe how accounting information may be • solvency requirements;
used internally;
• methods of calculation of the statutory minimum;
– outline the use of modelling techniques.
• changes to the EEU solvency requirements.
3.3 Budgetary planning and control
4.4 Corporate governance
Candidates should be able to
Candidates should be able to
– discuss the role of budgeting within the planning process;
– discuss the role of corporate governance in the regulation
– discuss variable analysis. of insurance companies;
– discuss the role of internal and external audits.
3.4 Budgetary processes and the preparation of budgets
Candidates should be able to
– describe the operation of the budgetary process; 5. Taxation
– describe how budgets are prepared. 5.1 Principles of direct and indirect taxation
Candidates should be able to
3.5 Planning and control of resources
– explain the main principles of direct and indirect
Candidates should be able to
taxation, including:
– discuss the role of budgets in the control of resources;
• corporation tax;
– discuss the significance of methods of control of debtors
• insurance premium tax;
and cash;
• value added tax.
– discuss the role and purpose of capital
expenditure planning.
5.2 Taxation of the general insurance market
3.6 Operational control and performance measurement Candidates should be able to
Candidates should be able to – explain the special nature of insurance business in the
context of UK taxation;
– discuss:
– describe the effects of overseas taxation on
• feedback/feedforward controls;
insurance business.
• responsibility accounting;
• fixed and flexible budgets; 5.3 Long-term business
• non-financial measures. Candidates should be able to
– outline the principles of taxation in relation to
3.7 Fundamentals of cost accounting long-term business.
Candidates should be able to
– discuss the fundamentals of cost accounting, including: 6. Investments and sources of capital
• the bases for management and cost accounts;
• apportionment and allocation of costs; 6.1 Markets
• costing techniques. Candidates should be able to
– describe the role of the Stock Exchange and other
3.8 Application of costing capital markets.
Candidates should be able to
6.2 Investment strategies and fund requirements
– discuss the application of costing to the decision
making process. Candidates should be able to
– outline the various capital structures of
insurance companies;
4. Regulation of insurance – discuss the principles underlying insurers’ investment
strategies and the main types of investments that
4.1 Principal UK legislation
support them;
Candidates should be able to
– discuss differing investment fund requirements for
– explain the principal UK legislative provisions, both long-term and general insurance and how they might
implementing EU directives and special UK rules; be met.
– describe the main provisions of the Financial Services
Authority requirements; 6.3 Sources of funds
– discuss the role of the EU in the supervision of UK Candidates should be able to
insurance companies; – discuss the ways insurers can raise capital;
– discuss the main provisions and implementation of the – describe the way insurers provide for long term liabilities
major EU directives relating to insurance by the use of alternative risk transfer mechanisms.
company supervision.

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Reading list
The following list provides details of various publications which
may assist with your studies. The primary text for this syllabus
is shown in bold type. Periodicals and publications listed as
additional reading will be of value in ensuring candidates keep
up to date with developments and in providing a wider coverage
of syllabus topics. Any reference materials cited are
authoritative, detailed works which should be used selectively
as and when required.
Note: The examination will test the syllabus alone. The reading
list is provided for guidance only and is not in itself the subject
of the examination.
CII/Personal Finance Society members can borrow most of
these additional study materials from CII Knowledge Services
and may be able to purchase some at a special discount. For
further information on lending and discounts go
to www.cii.co.uk/knowledge

Primary text
Finance and accounting. London: The CII. Coursebook 940.

Additional reading
Accounting for non-accounting students. J R Dyson. 6th ed.
Harlow, Essex: Pearson Education, 2004.
Insurance in the single market. Paul Clarke. London. CII
Knowledge Services. Updated as necessary. Available online
at www.cii.co.uk/knowledge/factfiles (CII/Personal Finance
Society members only).
The prudential regulation of insurance companies. Tony
Wiltshire. London: CII Knowledge Services. Updated as
necessary. Available online at www.cii.co.uk/knowledge/factfiles
(CII/Personal Finance Society members only).

Reference works
Companies Act 1985. London: HMSO, 1985.
Companies Act 1989. London: HMSO, 1989. Also available
online at www.opsi.gov.uk/acts/acts1989/Ukpga_19890040
_en_1.htm.
Dictionary of insurance. C Bennett. London: Pearson Education,
2004. Also available online (CII/Personal Finance Society
members only) at www.cii.co.uk/knowledge/doi.
Financial Services and Markets Act 2000. London. HMSO, 2000.
Also available online at www.opsi.gov.uk/acts/acts2000/
20000008.htm.
The FSA handbook of rules and guidance. London. Financial
Services Authority. Updated. Also available online at
www.fsahandbook.info.

Websites
CII Knowledge Services – www.cii.co.uk/knowledge
The Financial Services Authority – www.fsa.gov.uk
The Institute of Chartered Accountants – www.ICAEW.co.uk
The Financial Reporting Council – www.frc.org.uk

Examination guides
You are strongly advised to study these before the examination.
Please visit www.cii.co.uk to buy online or contact CII Customer
Service for further information on +44 (0)20 8989 8464.

Exam technique/study skills

There are many modestly priced guides available in bookshops.
You should choose one which suits your requirements.
You will also find advice at www.cii.co.uk/knowledge/careersupport
(CII/Personal Finance Society members only).
For a more interactive approach, you should consider:
Winning the brain game. London: The CII, 2006. CD-ROM.

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© The Chartered Insurance Institute 2007