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Old 12-08-2009, 11:38 AM
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Carol Marler
Join Date: Sep 2001
Location: Back home again in Indiana
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Originally Posted by The Mad Hatter View Post
So, just to be clear, you think that if Company A and Company B sell the exact same policy to the exact same customer save for one difference: A pays $100 in commission and B pays $200. Then B gets to capitalize $200 of profits up front but A only $100? And that makes sense to you?

And if the capitalized profits to be earned on the contract depend on earning credit spreads, the nonsense of traditional accounting only multiplies.
The premiums will be different if the commissions vary that much. This was even part of the discussion in the link I provided.

I'm not supporting traditional accounting, I am challenging the decision not to capitalize acquisition costs - when the product pricing contemplates sufficient margin to amortize them. There are several categories of margin, and the one to amortize acquisition costs USED TO BE in the IASB proposal until FASB talke them out of it. And if the margins subsequently prove inadequate, the contemplated valuation process would take down those capitalized amounts. Sort of like how recoverability testing works today, but through a different mechanism.
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