Determinants of Voluntary Accounting Policy Choices by Australian Life Insurers

This paper empirically examines various incentives facing managers of Australian life insurers to voluntarily use actuarial-based income smoothing techniques (AIS). AIS were subsequently incorporated into jointly-developed Australian and New Zealand life insurance accounting standards (LIAS) issued in 1997. The propensity of managers to voluntarily use AIS is predicted to be related to the firm’s tax rate, ownership structure, size, expense ratio and solvency. These predictions were tested on a sample of 28 firms during the period 1992-93. Empirical results suggest that firms using AIS tend to be larger, pay higher levels of income tax and are less likely to contravene minimum solvency requirements.