The Value Relevance of Deferred Acquisition Cost: Implication for Fair Value Accounting in Insurance Firms
Journal
證券市場發展季刊
Journal Volume
24
Journal Issue
4
Pages
39-63
Date Issued
2012
Author(s)
Abstract
This paper examines the value relevance of two alternative accounting methods for deferred acquisition cost (DAC) in insurance firms. We find that current capitalize-amortize approach is more useful than suggested direct-expensing one in explaining firms' values, stock returns and future cash flows. Our results are consistent with practitioner concerns about potential costs of applying fair value approach in insurance industry, and therefore carry important implications for standard-setting while Taiwan seeks to converge toward the fair-value trend.
Type
journal article