Insurance Planning: Don’t Expect Claims Process to Be Easy
MARCH 2008 -
The article “Disability Insurance Planning for Professionals”
by Joseph V. Bencivenga, CPA (December 2007) was very informative.
Let me add some real-life experience to the discussion.
hint at the leverage that the insurance companies have in determining
ultimate benefit payouts when they discuss the “any occupation”
definition as being up to the insurance companies to decide. This
is the tip of the iceberg. The insurance companies hold a very
strong hand when it comes to determining whether or not a claimant
receives any benefit. They will show no mercy in interpreting
the policy so that they pay little or no benefit.
If you are
unfortunate enough to need to make a claim on your disability
policy, specifically for a permanent disability, keep in mind
- Do not
delay in making the claim; delay can be interpreted by the insurance
companies as proof that you were not really disabled, just unwilling
to keep working. Delay can also negatively impact the earnings
baseline used to calculate your drop in earnings due to disability,
and your ultimate benefit.
- Put yourself
under the regular care of a doctor specializing in your disability.
Self-medicating and denial of your disability is fuel for insurance
companies to deny your claim of a true disability.
out the qualifications of the doctors that the insurance companies
send you to for their independent assessment; this may give
you leverage when negotiating your ultimate benefit.
- Find a
qualified attorney to represent you, one who specializes in
disability claims such as yours.
expect to receive the monthly benefit that you paid for. If
the insurance companies do agree to pay, they prefer to pay
a lump-sum settlement so that they avoid the long-term recurring
impact on their financial statements. Having a strong disability
insurance policy is an excellent part of a financial plan. But
don’t count on the claim process being easy.
New York, N.Y.
the Efficacy of Sarbanes-Oxley
“Sarbanes-Oxley: A Bill of Goods” (Inbox, January
2008), I am tempted to ask the writer, Joseph Bencivenga, if I
use his premise of the ineffectiveness of laws and regulations
at a minimum SOX, then whether we should do away with them all.
Less government, less regulation, and we will achieve nirvana
and utopia simultaneously.
In the case
of Citibank, there may be very good reasons that 11 months before
there may not have been any evidence, indication, or existence
of adverse factors that could have been observed by either management
or the external auditors to cause them to raise an alarm at that
time, and those factors subsequently did materialize over the
ensuing months. This may hold true for Merrill Lynch as well.
that no man-made system is infallible; therefore, deal with it!
Howard, CIA, CPA
Palm Beach, Fla.
When I wrote
my letter, I did think about the issue of subsequent events and
whether it was fair to criticize Citibank or KPMG for something
that developed later and that presumably they could not foresee
when they gave their assurances and expressed their clean opinion
on internal control over financial reporting. However, management
had to have known about the off–balance sheet exposure;
and the auditors should have inquired about such exposure. Citibank’s
subsequent decision to put the off–balance sheet numbers
on its balance sheet calls into question the issuer’s and
the auditor’s prior assurances, which was partly the subject
of my letter. Plus, the writer misses the point, which is that,
despite Sarbanes-Oxley Act section 404, Citibank, Merrill Lynch,
and other companies wrote off billions largely because of questionable
internal controls. To me that’s an indictment of the efficacy
V. Bencivenga, CPA
on Financial Reporting, Past, Present, and Future
As I read
the interview with FASB Chairman Robert Herz and the accompanying
article on his remarks at the FEI conference in October 2007 (The
CPA Journal, November 2007), the following thoughts, among
others, occurred to me:
1. As someone
who worked in the international accounting area for many years,
I support all the efforts underway to achieve greater convergence
between international and U.S. accounting standards. However,
it should be recognized that obtaining complete convergence in
the published standards (if that is possible) is the beginning
of the process, not the end. It is highly probable that reasonable
people acting in good faith will sometimes interpret the standards
differently; for example, because of differences in their backgrounds
or the customs and legal requirements of their home countries.
To use a personal example, my former firm established an international
committee in 1996 to write a book explaining the improved international
accounting standards that had recently been adopted by the International
Accounting Standards Board (IASB)’s predecessor, the International
Accounting Standards Committee (IASC). Although four committee
members (including me) had represented their countries on the
IASC and had approved the new standards, from time to time we
found ourselves in disagreement on the meaning of the standards
we had just approved. The problem is not insurmountable, but users
should realize that there will be a learning period in applying
the conformed standards uniformly.
2. FASB and
the IASB should be careful not to overstate what their pronouncements
have accomplished. A good example is FASB’s efforts with
respect to lease accounting, which Herz rightly criticizes. Many
people seemed to have the impression that FASB had written a strict
standard on lease capitalization and that its efforts were subsequently
undermined by preparers, their financial advisors, and compliant
outside auditors. As one who followed the lease accounting project
from day one, I can say that this scenario is not what happened.
The original leasing standard was both convoluted and flawed (some
called it the Swiss cheese standard). The conventional wisdom
when it was issued was that no one would have to capitalize a
new lease under the new standard unless they wanted to. The numerous
amendments and interpretations that ensued were an ongoing attempt
to shore up an unsteady foundation. If FASB and the IASB want
to write a standard requiring lease capitalization, they should
do so in a straightforward manner; for example, all leases with
a term of more than one year, including renewal options under
the control of the reporting company. While that would not solve
all the problems, it would be a good start.
3. It is
good to see that FASB and the SEC, after years of strong resistance,
now support the idea of principles (or objectives)-based accounting
standards. Given the litigious environment in this country, FASB
should make clear the respective responsibilities of preparers
and auditors in implementing this approach. It seems clear the
preparers should make the initial determination of how to apply
this approach to their financial statements. I think it should
also be made clear that the auditors’ responsibility is
to assess whether the company has a reasonable basis for the positions
it has taken. The auditors should not be expected to override
the company’s determination in this regard, even if they
would have reached a different conclusion in the circumstances,
as long as the company’s position was reasonable. I think
this was the approach usually followed when the functional currency
concept was introduced into the accounting for foreign currency
translation, and it seemed to work well.
4. I agree
that financial instruments should generally be carried at fair
value. Recent experience has shown that this laudable principle
can be difficult to apply in practice. According to press reports,
some of the recent large losses in the financial markets have
occurred because the buyers did not fully understand what they
were buying. More troubling, from a financial-reporting standpoint,
are the losses that have been incurred because subprime loans
have performed as expected in the absence of future appreciation.
Stated differently, it was known at origination that many subprime
borrowers could not make the payments required by the terms of
their loan. Both lender and borrower were looking to future appreciation/refinancing
to satisfy the loan. There seems to be a serious question as to
whether current fair value for reporting purposes should be based
on hoped-for-but-not-assured future appreciation. Herz mentioned
that these and related fair-value questions are presently being
studied. Perhaps the standards setters will always be playing
catch-up. One of Herz’s predecessors said the problem was
that Wall Street works 24 hours a day and FASB only works eight.
(Maybe Herz has changed that.)
As a retiree
still interested in financial reporting matters, I appreciate
the efforts of the NYSSCPA and The CPA Journal to report on these
J. Murray, CPA (Retired)
note: The writer is a former member of FASB’s Emerging
Issues Task Force (EITF) and Advisory Task Force on the Consolidation
Project; the International Accounting Standards Committee (IASC),
now the International Accounting Standards Board (IASB); and the
AICPA’s Accounting Standards Executive Committee (AcSEC).
the New Pension Accounting Rules Affect the Dow 30’s Financial
Statements: Potential Implications for Policymakers and Equity
Research Analysts” (by Stephen H. Bryan, Steven Lilien,
and Jane Mooney, The CPA Journal, March 2007), the footnote
to Exhibit 2 contains what I consider an error. The term “mark-to-market,”
describing the retained earnings columns, is not used correctly.
changed the definition of fair value (also known as market value).
As a result, the effective-settlement pension liabilities of SFASs
87 and 106 are no longer considered to be fair value. SFAS 159
prohibits the use of fair value for pension and for other postretirement
benefits (OPEB) liabilities (paragraph 8). So, what SFAS 158 provides
is essentially a mark-to-funded status based on effective-settlement
measurement for liabilities and market value for assets.
of the authors responds:
correctly points out that we continue to have a mixed attribute
model in the area of pension accounting. There are a number of
other scope exceptions to fair value in the literature, particularly
in business combinations. The purpose of our article was not to
consider the impact of these mixed attribute measurements, which
we accordingly believe would be a topic for another article. The
authors do not think a correction is necessary, particularly because
our article was estimating the impact of a new pronouncement using
earlier period calculations.
Lilien, PhD, CPA
City University of New York–Baruch
College, New York, N.Y.