AC599 Unit 3 Accounting Standards Research Summary Example

Each Citation Tied to the Decision It Governs: A Unit 3 Standards Research Summary for a Health Claims Reserve

[Student Name]

Purdue University Global

AC599: Graduate Capstone in Accounting

Unit 3 Standards Research Summary

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[Date]

Hollis Creek Supply and every figure are composite; the standards, actuarial guidance and texts cited are real.

How the Summary Is Organized

Rather than summarizing each source in turn, the summary lists the decisions the analysis must make and, for each, the governing authority, what it requires and the Hollis Creek fact it will be tested against. Research organized this way can be checked against the analysis later: every decision has a source, and every source has a use.

Decision 1: Must incurred but unpaid claims be accrued?

Authority. Under the contingency rules, a loss is recorded once it is likely that the company already owed something at year end and the amount can be estimated sensibly (Financial Accounting Standards Board, 1975).

Application. Medical services received by covered employees before December 31 create an obligation for the plan to pay, whether or not the bill has arrived. The obligation is certain in aggregate; only the amount is uncertain. Three years of payment history make it estimable. Accrual is required.

Decision 2: How should the amount be estimated?

Authority. Actuarial guidance on incurred health claims describes acceptable methods, including completion factors derived from historical payment patterns and projections based on expected cost per covered member, and asks the estimator to consider changes in benefits, processing and enrollment (Actuarial Standards Board, 2011). Standard texts on group health describe the same methods for employer plans (Bluhm, 2012).

Application. Because the administrator reports each month's claims by when the service happened and when it was paid, completion factors can be built. For the most recent months, where little has been paid, a per-member projection is more reliable.

Decision 3: Should the estimate include a margin?

Authority. The accrual should reflect the best estimate within a range; where no amount is better than any other, the minimum is accrued (Financial Accounting Standards Board, 1975). Actuarial practice may include a margin for adverse deviation, but the accounting best estimate should not deliberately overstate the liability.

Application. The estimate will be presented as a best estimate with a range, and any margin will be disclosed separately, not built into the recorded amount.

Decision 4: Can the stop-loss reimbursement offset the liability?

Authority. Money expected back from an insurer is booked as its own asset once collection is probable, and it stays separate from the liability unless the parties have a legal right of set-off (Kieso et al., 2019).

Application. One member's claims passed the $150,000 specific deductible in November. The expected $38,000 recovery is presented as a receivable, or netted only if the stop-loss contract and practice support offset; the analysis will check the contract.

Decision 5: Are pharmacy claims part of the same liability?

Authority. The same accrual rule applies to every component of the plan's incurred cost.

Application. A separate pharmacy benefit manager pays drug claims every two weeks. They are included, with their own short lag.

Decision 6: How will the auditor evaluate the estimate?

Authority. The auditing standard on estimates directs the auditor to test the data, the method and the significant assumptions, or to develop an independent estimate (American Institute of Certified Public Accountants, 2020).

Application. The analysis will document data reconciliation to the administrator's paid totals, the method's rationale and a hindsight test of the prior-year estimate, anticipating the auditor's work.

Pairing each authority with the decision it governs means the analysis can never cite a source it does not use or make a judgment no source supports, which is the test a reviewer will apply to the final report.

What the Research Changed

The research added two decisions the proposal had missed: the stop-loss receivable and the pharmacy lag. It also replaced the proposal's assumption that a margin belongs in the recorded liability with the accounting best-estimate standard.

References

Actuarial Standards Board. (2011). Incurred health and disability claims (Actuarial Standard of Practice No. 5). Actuarial Standards Board.

American Institute of Certified Public Accountants. (2020). Auditing accounting estimates and related disclosures (Statement on Auditing Standards No. 143). AICPA.

Bluhm, W. F. (Ed.). (2012). Group insurance (6th ed.). ACTEX Publications.

Financial Accounting Standards Board. (1975). Accounting for contingencies (Statement of Financial Accounting Standards No. 5). FASB.

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.