What action should be taken by a public-entity risk pool when reporting a deficiency in premium?

When a public-entity risk pool encounters a deficiency in premium, expensing unamortized acquisition costs to the extent of the deficiency is an appropriate action to take. This approach aligns with generally accepted accounting principles (GAAP), which require that expenditures associated with acquiring insurance or risk management services be amortized over the period those services are utilized.

In this situation, if the premiums collected are insufficient to cover the associated risks and expenses, it is logical to recognize the shortfall by deducting those costs from the pool's financials. By expensing the unamortized acquisition costs, the risk pool effectively acknowledges the financial reality of the deficiency without inflating revenues or misrepresenting the claims expenses. This method ensures transparency in the financial statements and accurately reflects the financial position of the risk pool.

Such an action might not only provide a clearer picture of the financial health of the pool but also help stakeholders understand how premium deficiencies impact overall operations and future premium strategies.