Insurance Insurance Insurance Insurance

Disclosure Practices of Insurance Companies in Bangladesh: Hypothesis of the Study companies in the light of provisions of the Insurance Companies
Act 1938, Securities & Exchange Ordinance 1987, Securities &
correlated. Where total asset is independent variable and total
disclosures is dependent variable. All the five companies have shown
Testing of Hypothesis-3 Another attempt has been made to examine whether the extent of
disclosure is associated with various corporal attributes like size and
Appendix
Table-V Disclosure Index
Study on Some Selected Insurance Companies a) There is no correlation between the size of the company and the
disclosure practices.
Exchange Commission Act 1993 and accounting standards has the very high positive correlation between total assets and total T-test for Sample Companies
age of the company. This study showed that there is a relationship
between disclosure practices by the insurance companies and the
A. Balance Sheet Items
1. Classification of asset;
been made. An un-weighted index of disclosure has been disclosure. Hence, with the increasing of total assets, the total
size and age of the company. The disclosure scores of old companies 2. Amount of tangible assets& intangible assets;
Md. Abu Bokar Siddique* b) There is no correlation between the age of the company and prepared incorporating the provisions of the aforesaid Acts. disclosure score has linearly increased. The increasing rate for BGIC, Sig.
3. Original cost of fixed assets and valuation procedure;
Paired Differences t df (2-tailed) is slightly higher than that of the new established companies. Again,
disclosure practices. Related literature has also been reviewed to construct the index. PLIC, PIC, UIC and CIC are 82.81 percent, 84.64 percent, 73.96 percent, Std. Std. 95% Confidence 4. Revaluation of fixed assets;
Md. Rabiul Islam** 81 percent and 73.96 percent respectively. Mean Devia- Error Interval of the large size companies have disclosed more information than that of 5. Long-term prepayment and deferred costs;
c) There is no significant difference between the extents of b. Correlation analysis has been conducted to find out the the small one. This study also showed that there is no significant 6. Method of valuation of investment and debenture;
tion Mean Difference
Abstract: The disclosure practices have become more comprehensive overtime because of increasing awareness of the disclosures among the insurance companies. association between different variables using the SPSS (Statistical Table-III difference between the extents of disclosures among the insurance 7. Nature of investment;
Lower Upper 8. Investments loan and advances;
stakeholders. The present study evaluates the extent of disclosure practices relating to age and size of the insurance companies in Package for Social Sciences). Balance of Fund vs. Total Disclosure companies. Disclosure scores of general insurance companies are 9. For loan and advances (good, bad, doubtful);
Bangladesh covering a period of five years based on published annual audited reports and relevant reporting requirements. The Methodology of the Study Pair 1 BGIC - PLIC 11.43 1.56 .70 9.48 13.37 16.32 4 .000
higher than that of life insurance companies. 10. Loans;
c. T-test has been used to compare the significant difference BGIC PLIC PIC UIC CIC
major finding of the study is that the age and size of the insurance companies mostly affects the disclosure practices by them. Collection of Data Pair 2 BGIC - PIC -.59 1.71 .76 -2.71 1.53 -.77 4 .483 Current Assets
between two sample means using the SPSS. Year B.F T.D. B.F T.D. B.F T.D. B.F T.D. B.F T.D. Disclosure practices of insurance companies except a few included
Adequate disclosure practices by the small sized companies are desired. Insurance companies should also improve their disclosure Pair 3 BGIC - UIC 1.54 .94 .42 .37 2.71 3.65 4 .022 11. Classification of current assets;
The study is based on the financial statements and operational 2004 53.58 65.37 73.4 56.11 42.36 66.48 27.2 63.52 32.63 56.67 the promulgation of the accounting standard followed. Insurance 12. Trade debtors, advances & agent balances (good, bad, doubtful);
practices regardless of their age. Results and Discussion
information of the sample insurance companies, which has been Pair 4 BGIC - CIC 5.37 2.69 1.20 2.04 8.71 4.47 4 .011 companies strive to comply with AIS-1, AIS-30 adopted in 13. Deposits & prepayments;
Keywords: Insurance, Stakeholder, awareness, Practice. 2005 54.88 65.93 159.3 54.91 32.82 67.78 31.45 64.35 45.64 59.35 14. Bills receivable;
collected by visiting the head office of the companies personally by Testing of Hypothesis-1 Pair 5 PLIC - PIC -12.02 1.89 .85 -14.37 -9.66 -14.19 4 .000 Bangladesh. To promote transparency of financial reporting the
2006 61.44 67.78 273.9 56.39 33.12 69.72 31.61 66.48 38.21 66.2 15. Accrued interest, premium, dividend, and tax refunds;
the researcher. Publications of ICAB (Institute of Chartered insurance company should follow companies Act, SEC rules and 16. Cash and bank balances;
Size of the firm influences the level of disclosure. There are several Pair 6 PLIC - UIC -9.89 1.62 .72 -11.89 -7.88 -13.68 4 .000
Introduction USA. An index of disclosure comprising 38 major information items Accountant of Bangladesh), ICMAB (Institute of Cost & Management 2007 55.03 71.67 492.7 58.06 41.81 71.94 37.27 68.89 36.73 67.59 Accounting Standard (AIS) properly. However, the disclosure practices
measures of size available. In the present study gross premium, total Capital and Liabilities
Pair 7 PLIC - CIC -6.05 3.84 1.72 -10.82 -1.28 -3.53 4 .024 of insurance companies are very poor due to lack of proper
In Bangladesh disclosure practices are mostly guided by the was developed to measure the extent of disclosure by companies in Accounting Bangladesh), Stock Exchange, and other related 2008 54.04 72.31 868.2 60.46 46.6 70.09 38.86 72.13 43.03 66.39 17. Classification of share and share premium;
asset and balance of funds have been used to measure the size of the Pair 8 PIC - UIC 2.13 2.34 1.05 -.77 5.03 2.04 4 .111 regulations and reporting standard. 18. Disclosure of each class of share capital;
Companies Act, 1994, Securities and Exchange Rules, 1987 and the both countries. Singhvi (1968) reports on the study findings based organization has been collected through library work.
company. Correlation -0.09 0.95 0.21 0.95 0.16
Management attribute is very much important to disclose the 19. Additional information about share capital;
Accounting Standards adopted by the Institute of Chartered exclusively on 45 Indian annual reports. The study revealed that Pair 9 PIC - CIC 5.96 2.94 1.31 2.31 9.61 4.53 4 .011
Selection of Sample Source: Annual Audited Reports
20. Reserve or contingency accounts;
Accountants of Bangladesh. Disclosure practices are also affected by companies with inadequate disclosure were likely to be small in size Table-I Pair 10 UIC - CIC 3.83 2.88 1.29 .26 7.41 2.98 4 .041
available information in the financial statement such as if the attribute 21. Balance of funds and accounts;
In order to accomplish a meaningful representation, the present Table-III demonstrates the correlation between balance of fund and is conservative the financial disclosure will be less. However, it is the 22. Long-term loans (secured and unsecured);
a number of other statutes e.g. Bangladesh Industrial Enterprises (measured by total assets and number of stockholders) less profitable Gross Premium vs. Total Disclosure
study has examined the annual audited reports of 5 insurance Source: Annual Audited Reports demand of time to disclose more information to satisfy the various 23. Debenture and loans;
Nationalization Order, 1972, Banking Companies Act, 1991, Insurance (measured by rate of return and earnings margin) and managed by Year G.P. T.D G.P. T.D G.P. T.D G.P. T.D G.P. T.D
total disclosure practices. All the five selected companies have found 24. Deferred liabilities;
companies of the 31 enlisted in Dhaka Stock Exchange Ltd. for the correlated. Where balance of fund is independent variable and total Table-V shows the paired sample t-test for insurance companies under kinds of users. Only a sound financial reporting system with good
Act, 1938, Income Tax ordinance, 1984, etc. Indians. 25. Deposits (premium);
period of 2004 to 2008. The sample insurance companies were 2004 231.42 65.37 209 56.11 154.55 66.48 130.18 63.52 108.18 56.67
disclosure is dependent variable. PLIC and UIC have shown very high study. T-test for insurance companies shows that at 5 percent level of governance can bring or maintained the confidence of the investors. 26. Classification of current liabilities;
It may be strongly argued that the most important medium of The selection of items included in the disclosure index is a major task selected by using of judgmental sampling approach. 27. Short-term loans & over drafts;
2005 275.28 65.93 338.9 54.91 131.47 67.78 149.44 64.35 158.72 59.35 positive correlations, PIC and CIC have shown low positive significance for paired sample 2 and 8 are significant. Hence, the null It is evident from the findings of our study that disclosure in the
external financial disclosure is the corporate annual report. The in the construction of any disclosure index (Martson and Shrieves: 28. Have in the parenthesis been separately disclosed? (creditors, accrued liabilities, advance
The name of the sample insurance companies is as follows: 2006 285.29 67.78 474.7 56.39 127.66 69.72 153.06 66.48 145 66.2 correlations and BGIC have shown very low negative correlations. hypothesis is rejected at 95 percent confidence level. We conclude insurance sector is inadequate and poor. Meaningful performance payment, interest accrued, unclaimed dividend, unpaid dividend, proposed dividend,
quality of financial reporting in a country depends on the legal 1991). Most of the previous studies have included items of that there is significant difference between the extent of disclosure evaluation of the insurance sector is not possible on the basis of custom duties, annuities, accrued expenses etc.);
requirements governing disclosure together with professional information of interest to a particular group. In some other studies, Sl.N. Sample Insurance Company Abbreviation 2007 317.29 71.67 588.4 58.06 144.24 71.94 180.05 68.89 166.13 67.59 On the basis of the table I, II, & III, we reject our null hypothesis at 95 information disclosed in the financial statement. In the case of financial 29. Contingencies and commitments;
recommendations which may have a varying degree of effectiveness practices of BGIC & PIC and PIC & UIC. T-test for rest of the paired
items of information have been included keeping in mind their 1 Bangladesh General Insurance Company BGIC 2008 353.66 72.31 833.7 60.46 168.03 70.09 208.01 72.13 181.75 66.39 percent confidence level, which supports that the size of the insurance reporting, the outlook of the company's board of directors should be B. Income Statement Items:
depending on the influence of the professional bodies concerned sample is not significant, which supports the null hypothesis. That
relevance to a broad range of users. The use of repetition of a companies in Bangladesh mostly affects the disclosure practices. changed and it should be made mandatory for the insurance sector to Revenue account:
(Marston: 1986). In addition, national and international accounting 2 Progressive life Insurance Company PLIC Correlation 0.934 0.907 0.018 0.983 0.726 means the extent of disclosure practices between BGIC - PIC, BGIC - 30. Debit items (claims, annuities, and surrenders);
disclosure index by the researchers is uncommon. For example, Parry Testing of Hypothesis-2 UIC, BGIC - CIC, PLIC - PIC, PLIC - UIC, PLIC - CIC, PIC - CIC, UIC - CIC do follow the disclosure requirements outlined in the IAS-30. All insurance 31. Expenses of management;
standards and stock exchange requirements may have an impact on 3 Prime Insurance Company PIC Source: Annual Audited Reports companies in Bangladesh should improve their disclosure practices 32. Credit items (premium, annuities, registration fees, interest, dividends, commission
the disclosure of information in corporate annual reports. and Grpves (1990) argued that their model was originally developed Age of the firm influences the level of disclosure. The old aged firms not significantly differ. We can conclude that the extent of disclosure on re-insurances, other income to be specified);
by Singhvi (1967) index (applied in the Indian context) and they 4 United Insurance Company UIC Table-I portraits the correlation between gross premium and total have a tendency to disclose more information due to their long practices for maximum insurance companies is almost same. particularly the small sized. Moreover, insurance companies should
improve their disclosure practices regardless of their age. r Profit and Loss Account
Review of Literatures applied the same in the context of Bangladesh (a country very similar disclosure practices in the annual report of the selected insurance experience than that of the new firms. 33. Result of operation (if company has more than one business);
5 Central Life Insurance Company CIC companies in Bangladesh for the year 2004 to 2008. There is a Conclusion & Policy Recommendations
Disclosure is a part of revolutionary process. In a democratic setup, to India in terms of both industrial framework and level of Table-IV References 34. Items of income;
the demand for disclosure automatically increases. This is because all correlation between gross premium and total disclosure of all the five Our study discussed some of the result of the annual report survey. Annual Audited Reports, BGIC, PLIC, PIC, UIC, CIC: 2004-2008. 35. Items of expenses should be disclosed separately;
development). In some cases, information items were selected by the Construction of Disclosure Index Age vs. Disclosure practice 36. Interest on borrowing and loans;
of the people directly or indirectly involved with the company in selected companies. Where gross premium is independent variable Financial report is of vital importance to several groups. A company A.Z.M. Anisur Rahman and Quazi Mohammad Galib Ahsan, “Full disclosure: A defense of the
researchers for their disclosure indexes from a careful review of other 37. Losses & provisions for bad and doubtful debts;
question will want to be able to quantify their risk. (Komatsubara: The disclosure index constructed for this study included 54 items and total disclosure is dependent variable. BGIC, PLIC and UIC have Year Age T.D Age T.D Age T.D Age T.D Age T.D should develop a sound financial reporting system for its own disclosure of Accounting Policies”, Accounting Disclosure, The Cost and Management,
38. Taxation;
studies of financial disclosure as well as after a review of recent annual shown very high positive correlation while CIC has shown positive May-June 1993, p. 36
1999). Rahman and Ahsan (1993) viewed that the historical (shown in appendix) which were used in the formulation of items of 2004 20 65.37 4 56.11 8 66.48 20 63.52 18 56.67 interest. Financial performance and position of a company are 39. Remuneration of directors & executives;
reports of listed companies. In addition, the disclosure requirements correlation and PIC has shown very low positive correlation. We can
Financial Accounting Standards Board (FASB) 1978, Objectives of financial Reporting by 40. Profit & loss appropriation account;
development of accounting principles and practices has been closely information. The items of information included in the disclosure 2005 21 65.93 5 54.91 9 67.78 21 64.35 19 59.35 measured on the basis of financial information which is used in the Business Enterprises. Statement of Financial Accounting Concepts No. 1 (Stamford,
relating to national accounting standards were considered and taken index were selected according to the IAS (International Accounting conclude that disclosure practices are mostly affected by the gross Connecticut: FASB) C. Accounting Policy Items
related to the economic development. financial reporting system. Notes to the Financial Statements / Accounting Policies
into account by these researchers in selecting items of information Standard) adopted in Bangladesh Accounting Standard (BAS), and premium rate. 2006 22 67.78 6 56.39 10 69.72 22 66.48 20 66.2 Financial Accounting Standards Board (FASB), (1981), Annual Report of the Financial
One of the strongest principles in financial accounting is that Disclosure of accounting information is a necessity for better Accounting Standards Board (Stamford, Connecticut: FASB). 41. Cash flow statement;
that ought to be disclosed by the companies and as such, where Insurance Company Act-1938, Companies Act 1994, SEC (Securities & 2007 23 71.67 7 58.06 11 71.94 23 68.89 21 67.59 42. Legal status and nature of the company;
accounting reports should disclose fully and fairly the information Table-II financial reporting of the insurance companies. An attempt has been Institute of Chartered Accountants of Bangladesh (ICAB), Bangladesh Accounting Standards
relevant, have been included in the disclosure index. Exchange Commission) Ordinance-1987 and ICAB. The items of (BAS), Volume I and II. Dhaka: ICAB.
43. Additional information on financial statement;
they purport to represent. All the concepts, guidelines, conventions, 2008 24 72.31 8 60.46 12 70.09 24 72.13 22 66.39 made in this study to measure the extent of disclosure practices by 44. Compliance with relevant laws;
information included in the disclosure index are regrouped as a. Total Assets vs. Overall Disclosure
rules, and procedures that make up accepted accounting practice of Objectives of the Study Correlation 0.964 0.872 0.848 0.98 0.89 the insurance companies. In this regard an un-weighted disclosure International Accounting Standards Board (IASB) (2001), Framework for the Preparation and
Presentation o Financial Statements (London: IASB).
Significant Accounting Policies:
Balance Sheet Items b. Income Statement Items c. Accounting Policy BGIC PLIC PIC UIC CIC
scores have been calculated. Disclosure practices of insurance 45. Description of all significant accounting policies
any given time is known as accounting principles. Full disclosure or The main objective of the study is to examine the disclosure practices Source: Annual Audited Reports International Accounting Standards Board (IASB), (2004), Discussion Paper Preliminary Views 46. Important accounting methods (depreciation, valuation, amortization)
Items d. Board of director's reports and e. Historical summaries. Year T.A T.D T.A T.D T.A T.D T.A T.D T.A T.D companies in the annual reports are not at satisfactory level. on Accounting Standards for Small and Medium-sized Entities (London: IASB).
completeness requires that all material accounting information that of Insurance Companies in Bangladesh. The specific objectives of the 47. Revenue recognition (premium, interest, dividend, management expense etc.)
might be of significance to a reasonably rational user be disclosed. Scoring of the Disclosure Index 2004 488.03 65.37 144.1 56.11 389.52 66.48 318.91 63.52 371.54 56.67 Table-IV portraits the correlation between age and total disclosure Our study showed that fifty four information items in the disclosure Komatsubara, Akira (1999), "The Disclosure Practices of Life Insurers", NLI Research Institute, 48. Share capital & share premium
study are: No.127, pp. 23-28.
(Rahman and Ahsan: 1993). Singhvi (1967 and 1968) pioneered the practices. All the five selected companies are found correlated. Where index were disclosed average 65 percent by insurance companies.
59. Accounting policies (life fund, loan & advances, balance of fund, reserve for
(a) To find out the adequacy of disclosure score and their In the present study, the annual reports of the 5 insurance companies 2005 515.76 65.93 322.1 54.91 419.66 67.78 336.5 64.35 392.93 59.35
age is independent variable and total disclosures is dependent Martson and Shrieves P.J. (1991) "The use of disclosure Indices in Accounting Research: A exceptional losses and contingent liabilities etc.)
research on corporate disclosure of third world companies by enlisted in the Dhaka Stock Exchange examined against un-weighted Insurance company also showed the increasing tendency of review article," British Accounting Review, Vol.23, pp. 32-43. 50. Premium & claims
interrelations with size and age of the selected insurance 2006 548.45 67.78 399.9 56.39 465.37 69.72 348.65 66.48 427.1 66.2 variable. All the companies have shown very high positive correlation
including a sample of 45 Indian companies in his overall sample of indexes. An un-weighted index of accounting standards is the ratio of information item disclosed. The average disclosure score of the Marston, C. L. (1986), Financial Reporting Practices in India. London: Croom Helm. 51. Specific current assets and liabilities
companies. 2007 567.88 71.67 616.9 58.06 491.54 71.94 414.23 68.89 440.42 67.59 between age and total disclosure. Hence, with the increasing of age, 52. Information about directors and executives
200 annual reports to study corporate disclosure in India and the the values of the number of items a company discloses divided by individual insurance companies for the study period 68.61 percent, Parry M. J. and Groves, R. E. (1990), "Does Training More Accountants Raise the Standards of
(b) To find out the extents of disclosures among the insurance 2008 642.51 72.31 994 60.46 523.42 70.09 770.41 72.13 485.39 66.39 the total disclosure score has linearly increased. The increasing rate 57.19 percent, 69.20 percent, 67.07 percent, & 63.24 percent of BGIC, Accounting in Third World Countries? A Study of Bangladesh", In R. S. O. Wallace, John D. Board of director's reports
total value that it could disclose. Here, the only consideration is that for BGIC, PLIC, PIC, UIC and CIC are 92.16 percent, 75.69 percent, 72.25 M. Samuels and Richard J. Briston (eds.), Research in Third World Accounting", vol.1, 53. Reports of the board of directors (the state of the company's affairs, growth of
* Mr. Md. Abu Bokar Siddique, Assistant Professor (Accounting), Dept. of companies. PLIC, PIC, UIC, & CIC respectively. 60 percent of the insurance London: JAI Press. business, promotional measures, rating of the company, social welfare activities,
whether a company discloses an item of information in its corporate Correlation 0.91 0.92 0.86 0.89 0.85
percent, 96.04 percent and 79.21 percent respectively. Our null
Humanities, Rajshahi University of Engineering & Technology (RUET), (c) To provide suggestions for developing disclosure practices of companies have shown disclosure scores which are above the Singhvi, S. S. (1967), Corporate Disclosure through Annual reports in the USA and India appointment of auditors, directors responsibility statement recommended dividend
Rajshahi-8204, Bangladesh. annual report it will be awarded ‘1’ and if not, it will be awarded ‘0’. Source: Annual Audited Reports hypothesis is rejected at 95 percent confidence level. We can (unpublished doctoral dissertation, Graduate School of Business, Columbia University). etc.)
the insurance companies. average disclosure score of all insurance companies. Disclosure
** Mr. Md. Rabiul Islam, Lecturer (Management), Department of Humanities, Techniques of Analysis conclude that the disclosure practices of old companies are slightly Singhvi, S.S (1968), "Characteristics and Implication of Inadequate Disclosure: A Case Study of E. Historical Summaries
Table-II reveals the correlation between total assets and total practices of current year of insurance company are better than that of
Rajshahi University of Engineering & Technology (RUET), Rajshahi-8204, Abbreviations: TD = Total Disclosure, BF = Balance of Fund, TA = Total higher than the new established companies. India". The International Journal of Accounting Education and Research, Vol. 3 No. 2
54. Information about company (name, nature & activities, legal status etc.)
Bangladesh. a. A survey of the published accounts of the sample insurance disclosure practices. All the five selected companies are found the previous year. Spring, pp. 29-44
Assets, GP = Gross Premium.

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