FINANCIAL
Profit Commission Actions
Revenue Recognition % The revenue recognition
of brokers accounting policies adopted by
●
When notified/confirmed firms are broadly consistent
by underwriters - 33.3 per with accounting standards and
cent
across the industry. However,
●
When notified/confirmed
disclosure of these policies is
by underwriters and can be
diverse and the level of detail
reliably estimated. -50.0
varies greatly.
per cent
Given the general trend
●
When it can be determined
towards transparent disclosure
- 16.7 per cent
within financial statements
Post placement activities
and more scrutiny of income
The deferral of revenue
disclosure to clients, firms
from contractual post
might consider enhancing their
placement activities such as
revenue recognition
policy wordings/documentation
accounting policy disclosures.
and claims handling is a key
Firms might consider
area of judgement and
enhancing disclosure in the
estimation. The range of
following areas, particularly
wording used is fairly small but
where these represent a high
16 firms do not disclose their
proportion of total revenue:
policy. In a key area, often
●
Fees
reviewed by HMRC, few firms
●
binding authorities
provide detailed commentary
●
profit commissions
on the methodologies and
●
methodologies and
assumptions used to determine assumptions for
the amount of revenue to be determining the deferral
deferred. of income in respect of
post placement activities
Post Placement
●
instalment business.
Activities % of brokers
●
Deferred to match costs of
Disclosing commission to
services - 3.4 per cent
clients on a consistent and
●
Deferred to match
transparent basis is likely to
contractual obligation of
become obligatory for firms.
future servicing - 89.9 per
Thinking about financial
cent
statement revenue recognition
●
Deferred and recognised in
now will make the transition
the periods in which post
to fuller commission disclosure
placement activities take
to clients easier: firms will
place - 6.7 per cent
have already discussed many
Instalment businesses
of the complex components
It was found some 43
that go into making up their
firms do not disclose their
income.
policy on revenue on
In addition, we may see
instalment business. FRS No. 5
industry guidance relating to
states that all revenue on
mandatory commissions
instalment business should be
disclosure driving firms to
recognised upfront and this
change the way they disclose
policy was adopted by those their revenue recognition
firms reviewed that did disclose accounting policies in their
their policy. financial statements.
Insurance Brokers’ Monthly 27
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