Suncorp - Inherent Risk

1. Use of Estimates
Inherent risk – Key account balances are determined on estimates
Suncorp uses estimates and judgements to determine account balances or the following key accounts (Financial Report Note 1):
• General insurance – outstanding claim liabilities and assets arising from reinsurance contracts
• Impairment of goodwill
As the account balance is based on estimate and judgement it is inherently risky. The issue is that the balance is basically based on a guess so there is a significant chance it is incorrect because there is no way to determine if it is right or wrong.
Why is it an inherent risk?
The use of estimates to determine account balances is inherently risky as it is a complex calculation based on judgement. The chance of material misstatement is high due to the way the balance is calculated. Misstatement can occur in the following accounts in the following ways:
• Outstanding claims liabilities – potential to understate liability which can distort the Financial Position of Suncorp. In addition it can lead to Going Concern issues if they have not provided sufficiently for potential liability which may result in issues with paying it later.
• Assets from reinsurance contracts – potential to overstate certain assets which do not represent a fair presentation of Suncorp’s financial position. This again will have issues with Going Concern.
• Impairment of Goodwill – if not valued correctly it can infect goodwill position.
Inquires with the client to determine method for calculating estimates and ensure it is in line with prior years. Calculations will need to be re – performed to ensure estimates are calculated accurately.
Where estimates are calculated using a third party professionals such as Actuaries, reports can be obtained to see that balances are in line with the third party. When third party professionals are used, the third party also needs to be evaluated to determine if we can rely on their reports.
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