Audit and Accounting Guide: Property and Liability Insurance Entities 2018
2nd Edition
Published on 26. February 2019
Book
Paperback/Softback
688 pages
978-1-945498-52-7 (ISBN)
Description
Get authoritative accounting and auditing guidance. Educate staff on the property and liability insurance industry, its products and regulatory issues, and the related transaction cycles an insurance entity is involved with. This guide contains updates on current GAAP and statutory accounting and audit guidance, as well as relevant guidance contained in standards issued through September 1, 2018 which have a major impact on insurance entities, including:
FASB ASU No. 2016-01 and AICPA Q&A Section 7100.15: Insurance Companies and the Definition of Public Business Entity
Revenue Recognition Implementation Issue: Considerations for Applying the Scope Exception in FASB ASC 606-10-15-2 and 606-10-15-4 to Contracts Within the Scope of FASB ASC 944
FASB ASU No. 2016-01 and AICPA Q&A Section 7100.15: Insurance Companies and the Definition of Public Business Entity
Revenue Recognition Implementation Issue: Considerations for Applying the Scope Exception in FASB ASC 606-10-15-2 and 606-10-15-4 to Contracts Within the Scope of FASB ASC 944
More details
Series
Edition
2nd edition
Language
English
Place of publication
New York
United States
Target group
Professional and scholarly
Dimensions
Height: 221 mm
Width: 150 mm
Thickness: 38 mm
Weight
839 gr
ISBN-13
978-1-945498-52-7 (9781945498527)
Copyright in bibliographic data and cover images is held by Nielsen Book Services Limited or by the publishers or by their respective licensors: all rights reserved.
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Other editions
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Book
03/2020
Wiley
€112.85
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Previous edition
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02/2018
American Institute of Certified Public Accountants
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Person
Founded in 1887, the American Institute of Certified Public Accountants (AICPA) represents the CPA and accounting profession nationally and globally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the accounting profession's technical and ethical standards.
The AICPA's founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, a licensing status and a commitment to serving the public interest.
The AICPA's founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, a licensing status and a commitment to serving the public interest.
Content
1 Nature, Conduct, and Regulation of the Business 01-113
General Nature of the Business 01-03
Kinds of Insurance 04-08
Legal Forms of Organization 09
Methods of Producing Business 10-17
Major Transaction Cycles 18-41
Underwriting of Risks 18-27
Pooling, Captives, and Syndicates 28-30
Processing and Payment of Claims 31-32
Investments 33-36
Definition of Public Business Entity 37-41
Revenue Recognition 42
Accounting Practices 43-113
State Insurance Regulation 43-51
National Association of Insurance Commissioners 52-53
Federal Regulation - Securities and Exchange Commission 54-59
Federal Regulation - The Dodd-Frank Wall Street Reform and Consumer Protection Act 60-70
Federal Regulation - Terrorism 71-75
Industry Associations 76
Statutory Accounting Practices 77-104
Generally Accepted Accounting Principles 105-112
Comparison of SAP and GAAP 113
2 Audit Considerations 01-188
Introduction 01
Scope of the Audit Engagement 02-15
General Considerations 02-04
Integrated Audit of Financial Statements and Internal Control Over Financial Reporting 05-10
Additional PCAOB Audit Standards 11-15
Planning and Other Auditing Considerations 16-75
Audit Planning 17-18
Audit Risk 19-23
Risk Assessment Procedures 24-29
Understanding the Entity, Its Environment, and Its Internal Control 30-49
Common Industry Ratios and Performance Metrics 50-62
Identifying and Assessing the Risks of Material Misstatement 63-66
2 Audit Considerations Performing Audit Procedures in Response to Assessed Risks 67-73
Use of Assertions in Obtaining Audit Evidence 74-75
Other Risk Assessment Activities and Considerations 76-80
Planning Materiality 76-78
Performance Materiality and Tolerable Misstatement 79-80
Consideration of Fraud in a Financial Statement Audit 81-82
Insurance Industry - Fraud Risk Factors 83-105
The Importance of Exercising Professional Skepticism 85
Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud 86-89
Obtaining the Information Needed to Identify the Risks of Material Misstatement Due to Fraud 90-91
Identifying Risks That May Result in a Material Misstatement Due to Fraud 92-96
Assessing the Identified Risks After Taking an Evaluation of the Entity's Programs and Controls That Address the Risks Into Account 97-98
Responding to the Results of the Assessment 99
Evaluating Audit Evidence 100
Responding to Misstatements That May Be the Result of Fraud 101-102
Communicating About Possible Fraud to Management, Those Charged With Governance, and Others 103-104
Documentation and Guidance 105
Use of Information Technology 106-109
Going Concern Considerations 110-118
Evaluating Misstatements 119-122
Audit Documentation 123-131
Consideration of the Work of Internal Auditors 130-131
Communication of Matters Related to Internal Control 132-139
Identification of Deficiencies in Internal Control 133-134
Communication of Deficiencies in Internal Control 135-139
Communication of Other Matters With Those Charged With Governance 140-144
Matters to Be Communicated 142-144
Communications by Successor Auditors 145
Auditor Independence 146-147
Auditing Fair Value Measurements and Disclosures 148-150
Considerations for Auditors to Comply With the NAIC
Model Audit Rule 151-172
Awareness 152-153
Change in Auditor 154
Auditor's Letter of Qualifications 155
Qualifications of the Auditor 156
2 Audit Considerations
Indemnification 157
Partner Rotation 158
Prohibited Services 159-161
Consideration of Internal Controls in a Financial Statement Audit 162
Notification of Adverse Financial Condition 163-164
Report on Internal Controls 165-167
Working Papers 168
Communications to Audit Committees 169
Management's Report on Internal Controls Over Financial Reporting 170-172
Auditor's Consideration of State Regulatory Examinations 173-177
Auditor's Consideration of Permitted Statutory Accounting Practices 178-182
SEC Requirements for Management's Report on Internal Control Over Financial Reporting 183-188
3 Premiums 01-132
Background 01-29
Types of Premiums Adjustments 04
Summary of Premium Transaction Flow 05-26
Involuntary Markets 27-29
Accounting for Premiums and Acquisition Cost 30-110
Premium Revenue and Premium Adjustments 30-49
Premium Receivable 50-55
Acquisition Costs 56-83
Premium Deficiencies 84-97
Medicare Part D 98-102
Accounting for Contracts That Do Not Transfer Insurance Risk 103-104
Disclosure Considerations 105-110
Auditing Premiums and Acquisition Costs 111-132
Audit Planning 111
Consideration of Fraud in a Financial Statement Audit 112
Audit Risk Factors - Premiums and DAC 113-116
Management Estimates 117-119
Risk of Material Misstatement - Inherent Risk Factors 120-121
Internal Control 122-124
Control Environment 125-126
Risk Assessment Process 127-128
Control Activities 129
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 130-131
Audit Consideration Chart 132
4 The Loss Reserving and Claims Cycle 01-204
Introduction 01-02
Types of Businesses and Their Effect on the Estimation Process 03-14
Policy Duration 04
Type of Coverage 05
Kind of Insurance Underwritten: Line of Business or Type of Risk 06-14
The Transaction Cycle 15-32
Claim Acceptance and Processing 16-18
Claim Adjustment and Estimation 19-24
Claim Settlement 25-28
Reinsurance Recoverable 29-30
Salvage and Subrogation 31-32
Components of Loss Reserves 33
Estimating Methods 34-53
Illustrative Projection Data 44-53
LAE Reserves 54-62
DCC Reserve Calculation Approaches 56-59
AO Reserve Calculation Approaches 60-62
Changes in the Environment 63-66
Critical Accounting Policies and Estimates Disclosure 67-68
Use of Specialists by Management in Determining Loss
Reserves 69-71
Guaranty Fund and Other Assessments 72
Accounting Principles 73-95
GAAP Accounting 73-74
Discounting Loss Reserves 75-82
Structured Settlements 83-85
Reinsurance Recoverables 86
Liability for Unpaid Claims and Claim Adjustment
Expenses 87-88
Statutory Accounting 89-95
Disclosures of Certain Matters in the Financial Statements of Insurance Enterprises 96-112
Applicability to Statutory Financial Statements 96
Relationship to Other Pronouncements 97-112
Auditing Loss Reserves 113-204
Planning Considerations - Overview 113-118
Consideration of Fraud in a Financial Statement Audit 119-121
Risk of Material Misstatement - Inherent Risk Factors 122
Internal Control 123-125
Control Environment 126
The Entity's Risk Assessment Process 127-128
Information Systems 129
4 The Loss Reserving and Claims Cycle Control Activities 130-131
Identifying and Assessing the Risks of Material Misstatement 132
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 133-141
Use of Loss Reserve Specialists 142
Loss Reserve Specialists Engaged by the Auditor 143-145
Use of Management Specialists by Auditors in Evaluating Loss Reserves 146-148
Auditor's Response to Management's Use or Non-Use of a Loss Reserve Specialist 149
Evaluating the Reasonableness of the Estimates 150
Analytical Procedures 151-156
Testing the Data, Assumptions, and Selection of the Estimate 157-161
Auditing the Underlying Data Used in the Loss Reserving Process 162-167
Develop a Point Estimate or Range to Evaluate Management's Estimate 168-169
Loss Reserve Ranges 170-176
Factors That Could Affect a Range of Reasonably Possible Outcomes 177-183
Evaluating the Financial Effect of a Reserve Range 184-192
Auditor Uncertainty About the Reasonableness of Management's Estimate and Reporting Implications 193-194
Evaluating the Reasonableness of Loss Adjustment Expense Reserves 195-196
Ceded Reinsurance Recoverable 197-202
Understanding the Impacts of Foreign Exchange 203
Audit Consideration Chart 204
5 Investments and Fair Value Considerations 01-251
Introduction 01-08
Overview 01
Investment Evaluation 02-03
Recordkeeping and Key Performance Indicators 04-05
The Transaction Cycle 06-07
Safekeeping 08
Regulation 09-14
Statutory Limitations 10-14
FASB Accounting Standards Codification 820 and 825 15-40
Definition of Fair Value 16-22
Application to Liabilities and Instruments Classified in a Reporting Entity's Shareholders' Equity 23-25
The Fair Value Hierarchy 26-30
Fair Value Determination When the Volume or Level of Activity Has Significantly Decreased 31-33
5 Investments and Fair Value Considerations Disclosures 34-35
Fair Value Option 36-38
Statutory Accounting 39-40
Accounting Practices 41-224
Significant Differences Between GAAP and Statutory Accounting 42
Cash and Cash Equivalents 43-50
Debt and Equity Securities 51-99
Mortgage Loans 100-114
Troubled Debt Restructurings 115-123
Real Estate 124-134
Derivatives, Including Futures, Options, and Similar
Financial Instruments 135-149
Joint Ventures and Partnerships 150-166
Investments in SCA Entities 167-182
Investment Income Due and Accrued 183-188
Asset Transfers and Extinguishments of Liabilities 189-202
Repurchase Agreements 203-215
Securities Lending 216-223
Other Information 224
Auditing Investments 225-251
Audit Planning 225
Consideration of Fraud in a Financial Statement Audit 226
Audit Risk Factors - Investments 227-230
Risk of Material Misstatement - Inherent Risk 231-233
Internal Control 234-236
Control Environment 237
Risk Assessment Process 238-239
Information System 240-241
Control Activities 242
Service Organizations 243-246
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 247-248
Group Audit Considerations for Investments in Alternative Investments and Subsidiary, Controlled and Affiliated Entities 249
Audit Consideration Chart and Procedures 250-251
6 Reinsurance 01-119
Types of Reinsurance 07-08
Reinsurance Contracts 09-19
Bases of Reinsurance Transactions 15-18
Frequently Used Terms in Reinsurance Contracts 19
Accounting Practices 20-81
6 Reinsurance Generally Accepted Accounting Principles Accounting Practices 20-75
Statutory Accounting Principles 76-81
Special Risk Considerations 82-86
Auditing Reinsurance 87-119
Audit Planning 87
Consideration of Fraud in a Financial Statement Audit 88
Audit Risk Factors - Reinsurance 89-91
Risk of Material Misstatement - Inherent Risk 92
Internal Control 93-94
Control Environment 95
Risk Assessment Process 96-97
Information and Communication 98-99
Control Activities 100
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 101-102
Internal Control of the Ceding Entity 103-104
Internal Control of the Reinsurer 105-106
Auditing Procedures for the Ceding Entity 107-109
Auditing Procedures for the Assuming Entity 110-113
Pools, Associations, and Syndicates 114
Reinsurance Intermediaries 115-118
Audit Consideration Chart 119
7 Income Taxes 01-67
Introduction 01-02
GAAP Accounting for Income Taxes 03-42
Basic Principles of GAAP Accounting for Income Taxes 05-26
Disclosure Requirements Contained in GAAP Literature 27-42
Statutory Accounting for Income Taxes 43-51
Disclosure Requirements Contained in Statutory Literature 51
Changes in Tax Law 52
Auditing Income Taxes 53-67
Audit Planning 53
Consideration of Fraud in a Financial Statement Audit 54
Audit Risk Factors - Income Taxes 55-57
Risk of Material Misstatement - Inherent Risk 58
Internal Control 59-60
Control Environment 61
Risk Assessment Process 62-63
Control Activities 64
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 65-66
Audit Consideration Chart 67
8 Insurance-Related Expenses, Taxes, and Assessments 01-93
Introduction 01-05
Premium and State Taxes 06-12
Guaranty Fund and Other Assessments 13-66
Generally Accepted Accounting Principles 19-22
Statutory Accounting Principles 23-30
The Patient Protection and Affordable Care Act 31-66
Capitalized Costs and Certain Nonadmitted Assets 67-71
Pensions 72-75
Audit Considerations 76-93
Audit Planning 76
Consideration of Fraud in a Financial Statement Audit 77
Audit Risk Factors 78-80
Internal Control 81-83
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 84-93
9 Captive Insurance Entities 01-41
Introduction 01-06
Types of Captive Organizations 07-26
Captive Operations 27-29
Specific Transaction Considerations and Accounting Principles 30-33
Taxes 33
Audit Considerations 34-41
Audit Planning 34
Consideration of Fraud in a Financial Statement Audit 35
Audit Risk Factors 36-38
Internal Control 39-40
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 41
10 Reports on Audited Financial Statements 01-82
Reports on Financial Statements 01-02
Unmodified Opinions on GAAP Financial Statements 03-05
Modified Opinions 06-26
Qualified Opinion 10-11
Disclaimer of Opinion 12-14
Adverse Opinion 15-17
Emphasis-of-Matter Paragraphs 18-25
Evaluating Consistency of Financial Statements 26
Additional Guidance When Performing Integrated Audits of Financial Statements and Internal Control Over Financial Reporting 27-31
Integrated Audits Performed in Accordance With GAAS 27
10 Reports on Audited Financial Statements Considerations for Audits Performed in Accordance With PCAOB Standards 28-30
Reporting on Whether a Previously Reported Material Weakness Continues to Exist 31
Auditors' Reports on Statutory Financial Statements of Insurance Entities 32-51
NAIC - Codified Statutory Accounting 33-35
Regulatory Basis Financial Statements Intended for General Use 36-40
Regulatory Basis Financial Statements Intended for Limited Use 41-45
Regulatory Basis Financial Statements - Other Issues 46-51
Correction of Error 52-57
Correction of an Error - Regulatory Basis Financial Statements Intended for General Use 56
Correction of an Error - Regulatory Basis Financial Statements Intended for Limited Use 57
Opinion on Supplemental Schedules 58- 64
Other Reports 65-82
Accountant's Awareness Letter 66-68
Change in Auditor Letter69-72
Notification of Adverse Financial Condition Letter 73-76
Auditor Reports for Communicating Unremediated Material Weaknesses in Internal Control to Insurance Regulators 77-80
Accountant's Letter of Qualifications 81-82
Appendix
A Accounting for Financial Instruments
B The New Leases Standard: FASB ASC 842
C The New Revenue Recognition Standard: FASB ASC 606
D Overview of Statements on Quality Control Standards
E Property and Liability Insurance Entity Specific Disclosures
F Examples of Development Data
G List of Industry Trade and Professional Associations, Publications, and Information Resources
H Schedule of Changes Made to the Text From the Previous Edition
Glossary
Index of Pronouncements and Other Technical Guidance
Subject Index
General Nature of the Business 01-03
Kinds of Insurance 04-08
Legal Forms of Organization 09
Methods of Producing Business 10-17
Major Transaction Cycles 18-41
Underwriting of Risks 18-27
Pooling, Captives, and Syndicates 28-30
Processing and Payment of Claims 31-32
Investments 33-36
Definition of Public Business Entity 37-41
Revenue Recognition 42
Accounting Practices 43-113
State Insurance Regulation 43-51
National Association of Insurance Commissioners 52-53
Federal Regulation - Securities and Exchange Commission 54-59
Federal Regulation - The Dodd-Frank Wall Street Reform and Consumer Protection Act 60-70
Federal Regulation - Terrorism 71-75
Industry Associations 76
Statutory Accounting Practices 77-104
Generally Accepted Accounting Principles 105-112
Comparison of SAP and GAAP 113
2 Audit Considerations 01-188
Introduction 01
Scope of the Audit Engagement 02-15
General Considerations 02-04
Integrated Audit of Financial Statements and Internal Control Over Financial Reporting 05-10
Additional PCAOB Audit Standards 11-15
Planning and Other Auditing Considerations 16-75
Audit Planning 17-18
Audit Risk 19-23
Risk Assessment Procedures 24-29
Understanding the Entity, Its Environment, and Its Internal Control 30-49
Common Industry Ratios and Performance Metrics 50-62
Identifying and Assessing the Risks of Material Misstatement 63-66
2 Audit Considerations Performing Audit Procedures in Response to Assessed Risks 67-73
Use of Assertions in Obtaining Audit Evidence 74-75
Other Risk Assessment Activities and Considerations 76-80
Planning Materiality 76-78
Performance Materiality and Tolerable Misstatement 79-80
Consideration of Fraud in a Financial Statement Audit 81-82
Insurance Industry - Fraud Risk Factors 83-105
The Importance of Exercising Professional Skepticism 85
Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud 86-89
Obtaining the Information Needed to Identify the Risks of Material Misstatement Due to Fraud 90-91
Identifying Risks That May Result in a Material Misstatement Due to Fraud 92-96
Assessing the Identified Risks After Taking an Evaluation of the Entity's Programs and Controls That Address the Risks Into Account 97-98
Responding to the Results of the Assessment 99
Evaluating Audit Evidence 100
Responding to Misstatements That May Be the Result of Fraud 101-102
Communicating About Possible Fraud to Management, Those Charged With Governance, and Others 103-104
Documentation and Guidance 105
Use of Information Technology 106-109
Going Concern Considerations 110-118
Evaluating Misstatements 119-122
Audit Documentation 123-131
Consideration of the Work of Internal Auditors 130-131
Communication of Matters Related to Internal Control 132-139
Identification of Deficiencies in Internal Control 133-134
Communication of Deficiencies in Internal Control 135-139
Communication of Other Matters With Those Charged With Governance 140-144
Matters to Be Communicated 142-144
Communications by Successor Auditors 145
Auditor Independence 146-147
Auditing Fair Value Measurements and Disclosures 148-150
Considerations for Auditors to Comply With the NAIC
Model Audit Rule 151-172
Awareness 152-153
Change in Auditor 154
Auditor's Letter of Qualifications 155
Qualifications of the Auditor 156
2 Audit Considerations
Indemnification 157
Partner Rotation 158
Prohibited Services 159-161
Consideration of Internal Controls in a Financial Statement Audit 162
Notification of Adverse Financial Condition 163-164
Report on Internal Controls 165-167
Working Papers 168
Communications to Audit Committees 169
Management's Report on Internal Controls Over Financial Reporting 170-172
Auditor's Consideration of State Regulatory Examinations 173-177
Auditor's Consideration of Permitted Statutory Accounting Practices 178-182
SEC Requirements for Management's Report on Internal Control Over Financial Reporting 183-188
3 Premiums 01-132
Background 01-29
Types of Premiums Adjustments 04
Summary of Premium Transaction Flow 05-26
Involuntary Markets 27-29
Accounting for Premiums and Acquisition Cost 30-110
Premium Revenue and Premium Adjustments 30-49
Premium Receivable 50-55
Acquisition Costs 56-83
Premium Deficiencies 84-97
Medicare Part D 98-102
Accounting for Contracts That Do Not Transfer Insurance Risk 103-104
Disclosure Considerations 105-110
Auditing Premiums and Acquisition Costs 111-132
Audit Planning 111
Consideration of Fraud in a Financial Statement Audit 112
Audit Risk Factors - Premiums and DAC 113-116
Management Estimates 117-119
Risk of Material Misstatement - Inherent Risk Factors 120-121
Internal Control 122-124
Control Environment 125-126
Risk Assessment Process 127-128
Control Activities 129
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 130-131
Audit Consideration Chart 132
4 The Loss Reserving and Claims Cycle 01-204
Introduction 01-02
Types of Businesses and Their Effect on the Estimation Process 03-14
Policy Duration 04
Type of Coverage 05
Kind of Insurance Underwritten: Line of Business or Type of Risk 06-14
The Transaction Cycle 15-32
Claim Acceptance and Processing 16-18
Claim Adjustment and Estimation 19-24
Claim Settlement 25-28
Reinsurance Recoverable 29-30
Salvage and Subrogation 31-32
Components of Loss Reserves 33
Estimating Methods 34-53
Illustrative Projection Data 44-53
LAE Reserves 54-62
DCC Reserve Calculation Approaches 56-59
AO Reserve Calculation Approaches 60-62
Changes in the Environment 63-66
Critical Accounting Policies and Estimates Disclosure 67-68
Use of Specialists by Management in Determining Loss
Reserves 69-71
Guaranty Fund and Other Assessments 72
Accounting Principles 73-95
GAAP Accounting 73-74
Discounting Loss Reserves 75-82
Structured Settlements 83-85
Reinsurance Recoverables 86
Liability for Unpaid Claims and Claim Adjustment
Expenses 87-88
Statutory Accounting 89-95
Disclosures of Certain Matters in the Financial Statements of Insurance Enterprises 96-112
Applicability to Statutory Financial Statements 96
Relationship to Other Pronouncements 97-112
Auditing Loss Reserves 113-204
Planning Considerations - Overview 113-118
Consideration of Fraud in a Financial Statement Audit 119-121
Risk of Material Misstatement - Inherent Risk Factors 122
Internal Control 123-125
Control Environment 126
The Entity's Risk Assessment Process 127-128
Information Systems 129
4 The Loss Reserving and Claims Cycle Control Activities 130-131
Identifying and Assessing the Risks of Material Misstatement 132
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 133-141
Use of Loss Reserve Specialists 142
Loss Reserve Specialists Engaged by the Auditor 143-145
Use of Management Specialists by Auditors in Evaluating Loss Reserves 146-148
Auditor's Response to Management's Use or Non-Use of a Loss Reserve Specialist 149
Evaluating the Reasonableness of the Estimates 150
Analytical Procedures 151-156
Testing the Data, Assumptions, and Selection of the Estimate 157-161
Auditing the Underlying Data Used in the Loss Reserving Process 162-167
Develop a Point Estimate or Range to Evaluate Management's Estimate 168-169
Loss Reserve Ranges 170-176
Factors That Could Affect a Range of Reasonably Possible Outcomes 177-183
Evaluating the Financial Effect of a Reserve Range 184-192
Auditor Uncertainty About the Reasonableness of Management's Estimate and Reporting Implications 193-194
Evaluating the Reasonableness of Loss Adjustment Expense Reserves 195-196
Ceded Reinsurance Recoverable 197-202
Understanding the Impacts of Foreign Exchange 203
Audit Consideration Chart 204
5 Investments and Fair Value Considerations 01-251
Introduction 01-08
Overview 01
Investment Evaluation 02-03
Recordkeeping and Key Performance Indicators 04-05
The Transaction Cycle 06-07
Safekeeping 08
Regulation 09-14
Statutory Limitations 10-14
FASB Accounting Standards Codification 820 and 825 15-40
Definition of Fair Value 16-22
Application to Liabilities and Instruments Classified in a Reporting Entity's Shareholders' Equity 23-25
The Fair Value Hierarchy 26-30
Fair Value Determination When the Volume or Level of Activity Has Significantly Decreased 31-33
5 Investments and Fair Value Considerations Disclosures 34-35
Fair Value Option 36-38
Statutory Accounting 39-40
Accounting Practices 41-224
Significant Differences Between GAAP and Statutory Accounting 42
Cash and Cash Equivalents 43-50
Debt and Equity Securities 51-99
Mortgage Loans 100-114
Troubled Debt Restructurings 115-123
Real Estate 124-134
Derivatives, Including Futures, Options, and Similar
Financial Instruments 135-149
Joint Ventures and Partnerships 150-166
Investments in SCA Entities 167-182
Investment Income Due and Accrued 183-188
Asset Transfers and Extinguishments of Liabilities 189-202
Repurchase Agreements 203-215
Securities Lending 216-223
Other Information 224
Auditing Investments 225-251
Audit Planning 225
Consideration of Fraud in a Financial Statement Audit 226
Audit Risk Factors - Investments 227-230
Risk of Material Misstatement - Inherent Risk 231-233
Internal Control 234-236
Control Environment 237
Risk Assessment Process 238-239
Information System 240-241
Control Activities 242
Service Organizations 243-246
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 247-248
Group Audit Considerations for Investments in Alternative Investments and Subsidiary, Controlled and Affiliated Entities 249
Audit Consideration Chart and Procedures 250-251
6 Reinsurance 01-119
Types of Reinsurance 07-08
Reinsurance Contracts 09-19
Bases of Reinsurance Transactions 15-18
Frequently Used Terms in Reinsurance Contracts 19
Accounting Practices 20-81
6 Reinsurance Generally Accepted Accounting Principles Accounting Practices 20-75
Statutory Accounting Principles 76-81
Special Risk Considerations 82-86
Auditing Reinsurance 87-119
Audit Planning 87
Consideration of Fraud in a Financial Statement Audit 88
Audit Risk Factors - Reinsurance 89-91
Risk of Material Misstatement - Inherent Risk 92
Internal Control 93-94
Control Environment 95
Risk Assessment Process 96-97
Information and Communication 98-99
Control Activities 100
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 101-102
Internal Control of the Ceding Entity 103-104
Internal Control of the Reinsurer 105-106
Auditing Procedures for the Ceding Entity 107-109
Auditing Procedures for the Assuming Entity 110-113
Pools, Associations, and Syndicates 114
Reinsurance Intermediaries 115-118
Audit Consideration Chart 119
7 Income Taxes 01-67
Introduction 01-02
GAAP Accounting for Income Taxes 03-42
Basic Principles of GAAP Accounting for Income Taxes 05-26
Disclosure Requirements Contained in GAAP Literature 27-42
Statutory Accounting for Income Taxes 43-51
Disclosure Requirements Contained in Statutory Literature 51
Changes in Tax Law 52
Auditing Income Taxes 53-67
Audit Planning 53
Consideration of Fraud in a Financial Statement Audit 54
Audit Risk Factors - Income Taxes 55-57
Risk of Material Misstatement - Inherent Risk 58
Internal Control 59-60
Control Environment 61
Risk Assessment Process 62-63
Control Activities 64
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 65-66
Audit Consideration Chart 67
8 Insurance-Related Expenses, Taxes, and Assessments 01-93
Introduction 01-05
Premium and State Taxes 06-12
Guaranty Fund and Other Assessments 13-66
Generally Accepted Accounting Principles 19-22
Statutory Accounting Principles 23-30
The Patient Protection and Affordable Care Act 31-66
Capitalized Costs and Certain Nonadmitted Assets 67-71
Pensions 72-75
Audit Considerations 76-93
Audit Planning 76
Consideration of Fraud in a Financial Statement Audit 77
Audit Risk Factors 78-80
Internal Control 81-83
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 84-93
9 Captive Insurance Entities 01-41
Introduction 01-06
Types of Captive Organizations 07-26
Captive Operations 27-29
Specific Transaction Considerations and Accounting Principles 30-33
Taxes 33
Audit Considerations 34-41
Audit Planning 34
Consideration of Fraud in a Financial Statement Audit 35
Audit Risk Factors 36-38
Internal Control 39-40
Audit Procedures Responsive to the Assessed Risks of Material Misstatement 41
10 Reports on Audited Financial Statements 01-82
Reports on Financial Statements 01-02
Unmodified Opinions on GAAP Financial Statements 03-05
Modified Opinions 06-26
Qualified Opinion 10-11
Disclaimer of Opinion 12-14
Adverse Opinion 15-17
Emphasis-of-Matter Paragraphs 18-25
Evaluating Consistency of Financial Statements 26
Additional Guidance When Performing Integrated Audits of Financial Statements and Internal Control Over Financial Reporting 27-31
Integrated Audits Performed in Accordance With GAAS 27
10 Reports on Audited Financial Statements Considerations for Audits Performed in Accordance With PCAOB Standards 28-30
Reporting on Whether a Previously Reported Material Weakness Continues to Exist 31
Auditors' Reports on Statutory Financial Statements of Insurance Entities 32-51
NAIC - Codified Statutory Accounting 33-35
Regulatory Basis Financial Statements Intended for General Use 36-40
Regulatory Basis Financial Statements Intended for Limited Use 41-45
Regulatory Basis Financial Statements - Other Issues 46-51
Correction of Error 52-57
Correction of an Error - Regulatory Basis Financial Statements Intended for General Use 56
Correction of an Error - Regulatory Basis Financial Statements Intended for Limited Use 57
Opinion on Supplemental Schedules 58- 64
Other Reports 65-82
Accountant's Awareness Letter 66-68
Change in Auditor Letter69-72
Notification of Adverse Financial Condition Letter 73-76
Auditor Reports for Communicating Unremediated Material Weaknesses in Internal Control to Insurance Regulators 77-80
Accountant's Letter of Qualifications 81-82
Appendix
A Accounting for Financial Instruments
B The New Leases Standard: FASB ASC 842
C The New Revenue Recognition Standard: FASB ASC 606
D Overview of Statements on Quality Control Standards
E Property and Liability Insurance Entity Specific Disclosures
F Examples of Development Data
G List of Industry Trade and Professional Associations, Publications, and Information Resources
H Schedule of Changes Made to the Text From the Previous Edition
Glossary
Index of Pronouncements and Other Technical Guidance
Subject Index