MCS02 - Accounting Manual for Insurance Companies

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CDSSF-56/1999
MCS-02
ACCOUNTING MANUAL FOR INSURANCE COMPANIES Approval: 29/07/1999 Validity:
The Board of Directors of the Financial System Superintendence, based on literal c) of article 10 of the Organic Law of the Financial System Superintendence and in compliance with article 85 of the Insurance Companies Law, issues the following:

ACCOUNTING MANUAL FOR INSURANCE COMPANIES

CHAPTER I
OBJECTIVES AND GENERAL PROVISIONS

A. OBJECTIVES
The Financial System Superintendence has prepared this Accounting Manual for Insurance Companies, which harmonizes with the Insurance Companies Law and complementary provisions in accounting matters, in accordance with practices and international accounting standards.

When this Manual refers to insurance companies, it shall be considered that insurance cooperatives referred to in article 120 of the aforementioned Law and branches of foreign insurance companies established in the country are included. The Financial System Superintendence, in the development of this document, shall be referred to as the Superintendence.

The objectives of this Manual are:

1. To standardize the accounting recording of operations performed by entities authorized to operate as insurance companies;
2. To obtain financial statements that reflect the economic-financial situation and constitute a useful instrument for the analysis of information, self-control, and decision-making by the administrators and shareholders of the companies, the public users of the services, and other interested parties;
3. To have a homogeneous database that allows the smooth functioning of an early warning indicator system, as well as facilitating the monitoring and control of each of the insurance companies and the system as a whole.

B. CONTENT
Chapter One contains the objectives and application of the Manual, general accounting standards, and the coding and naming system for the different levels of aggregation of accounts, codes, and names to identify branches and risks, banking institutions, and insurance companies.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CDSSF-56/1999
MCS-02
ACCOUNTING MANUAL FOR INSURANCE COMPANIES Approval: 29/07/1999 Validity:
Chapter Two contains the Account Catalog, which includes the nomenclature of disaggregated and ordered accounts, according to different classes, in sections, accounts, and sub-accounts.
Chapter Three contemplates the description of the respective elements, sections, and accounts.

C. UPDATE OF THE MANUAL
Only the Board of Directors of the Superintendence may make changes to this Manual; however, insurance companies may expand the accounts by disaggregating them, provided that such expansion corresponds to the concept of the account.

D. GENERAL ACCOUNTING STANDARDS
In addition to the specific standards defined in Chapter III Accounting Descriptions, it is considered convenient to establish general standards whose application must be observed when registering the operations performed by insurance companies, which are:

1. Preparation of financial statements
   Financial statements shall be prepared in accordance with the standards established by the Superintendence.
   In case of situations not foreseen in these standards, the most conservative alternative of the International Accounting Standards shall be applied; however, when the application of these produces results that are not considered acceptable, excludes important events, or proves impractical, the accountant must apply professional judgment.

2. Prevalence of economic substance over legal form
   For the accounting recording of operations, the economic essence must prevail over the legal form in which they are agreed, except when there is an express legal provision to the contrary.

3. Recognition of expenses and income
   For the allocation of expenses and income, except in cases established by specific regulation, the accrual accounting method is applied, meaning that the former are recorded when they are incurred and the latter when they have been accrued, regardless of whether they are paid or collected.

4. Accruals and monthly adjustments
   In order that financial statements are prepared on a uniform basis, it is required that the accounting recognition of results from operations be carried out at least at the end of each month, such as the accrual of income and the recognition of expenses for provisions and depreciation of real estate, furniture, and equipment, adjustments of balances in foreign currency due to exchange rate variations, amortizations of deferred items, etc.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CDSSF-56/1999
MCS-02
ACCOUNTING MANUAL FOR INSURANCE COMPANIES Approval: 29/07/1999 Validity:
5. Compensation of balances
The balances of asset, liability, and results accounts that are contrary to their nature shall be presented separately in order not to compensate them, unless there is an express provision regarding the presentation of financial statements.

6. Accounting of premiums for various risk policies
   When a single policy covers various risks and one is evidently predominant, the entire premium must be classified under the latter.

7. Allocation of expenses
   The allocation of expenses, except in those cases where specific regulations are established, shall be carried out as follows:

• Those linked to specific income must be imputed to the period in which they are recognized accounting-wise;
• Expenses not linked to specific income, but to given periods, must be imputed to the corresponding period; and
• The remaining ones must be charged to the periods in which they are known.

8. Recording and archiving of accounting documentation
   Insurance companies are obligated to keep all accounting, administrative, and other books determined by the Superintendence. The operations registered in them must be supported by the corresponding supporting documentation, complying with the standards established in the Commercial Code. Legal books must contain accounts up to four digits; and the others must be recorded in auxiliary books. The provisions established in Title II of Book Two of the Commercial Code must also be complied with, insofar as they do not oppose these standards. Likewise, they must maintain a clear, concrete, and individualized accounting of all their operations, applying unequivocally the standards and procedures established in the accounting regulations issued by the Superintendence.

9. Content of account balances
   Account balances must be definitive; consequently, they must not contain data subject to confirmation, clarification, or regularization, when this depends on the insurance company itself.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CDSSF-56/1999
MCS-02
ACCOUNTING MANUAL FOR INSURANCE COMPANIES Approval: 29/07/1999 Validity:
E. RESPONSIBILITY FOR INFORMATION
Directors, managers, and employees responsible for the preparation or review of accounting information shall be liable for errors, omissions, and irregularities contained therein.
Information received by the Financial System Superintendence may be modified within the period established for its presentation; once this period has expired, it shall be considered definitive. However, the insurance company may request the respective substitution, justifying it appropriately; nevertheless, even if authorized, the information shall be considered received out of time for the relevant legal effects.

F. CODING AND NAMING SYSTEM OF ACCOUNTS
1. The coding and naming of the elements, sections, accounts, sub-accounts, and analytical accounts provided for in this Manual has been structured based on a coding and naming system that contemplates different levels of aggregation, distinguishing the following:
Element: Identified by the first digit
Section: Identified by the second digit
Account: Identified by the third and fourth digits Sub-account: Identified by the fifth and sixth digits Currency type: Identified by the seventh digit Sub-account: Identified by the eighth and ninth digits or by the tenth and eleventh, as applicable.

2. The seventh digit can be zero (0), when it is not of interest to distinguish the class of currency represented by the account, one (1) when it represents national currency, or two (2), when it refers to foreign currency.

3. The elements defined in this Manual are the following:
1. Asset;
2. Liability;
3. Equity;
4. Expenses;
5. Income;
6. Contingencies and Commitments;
7. Contingencies and Commitments contra;
8. Control Accounts;
9. Control Accounts contra.