Insurance Acquisition Costs: Capitalizing Versus Expensing

• Autores: Chi Chun Liu, Yi Ping Liao
• Localización: Journal of Accounting Auditing and Finance, ISSN-e 2160-4061, ISSN 0148-558X, Vol. 35, Nº 3, 2020, págs. 558-580
• Idioma: inglés
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• Resumen

  • This article examines whether the capitalization–amortization or the direct-expensing method for insurance acquisition costs and commissions better reflects the economic substance. We find that both the currently capitalized–amortized acquisition costs and the as-if asset balance of expensed commissions are positively associated with the market value of equity, and are closely related to the level and volatility of subsequent insurance premiums. Results also show that when explaining the market value of equity, the insurance commission is significantly negative if capitalized and amortized, but is insignificant if directly expensed. The authors are the first to examine how the insurance acquisition costs and commissions are related to subsequent economic benefits, and our results are consistent with IFRS 17 under which the acquisition costs shall not be immediately expensed.