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CIA Annual Meeting


CIA Annual Meeting Assembl e annuelle de l ICA Auditing Guideline 43 Audit of Policy Liabilities of Insurance Enterprises Jim Christie, FCIA – PowerPoint PPT presentation

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Title: CIA Annual Meeting

CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Auditing Guideline 43
  • Audit of Policy Liabilities of Insurance
  • Jim Christie, FCIA

Session PC-5
June 30, 2006
General Audit Approach
  • For actuarial liabilities, the audit must
  • Assess and test controls
  • Review assumptions for reasonableness
  • Perform some tests of calculations models
  • Review results for reasonableness

PC-5 on AuG-43
Overview of Auditing Guideline 43
  • Provides guidance to external auditors when
    applying GAAS to policy liabilities of insurance
  • Scope
  • Life insurers (replaces AuG 15)
  • PC (new)
  • Workers Comp (new)
  • Reinsurers (new)
  • Excludes Pensions and Employee Benefits
  • Effective for audits of fiscal years on or after
    January 1, 2006

PC-5 on AuG-43
Major Impacts on Audit Process
  • External Auditor can no longer rely on the work
    of the Appointed Actuary ( 53)
  • External Auditor may continue to use the work of
    the Appointed Actuary ( 53)

PC-5 on AuG-43
Major Impacts on Audit Process
  • Strong presumption that External Auditor will
    have Actuarial Specialist on engagement team (
  • Independence considerations mean the Appointed
    Actuary cannot be the Actuarial Specialist ( 53)
  • Requires corroborative evidence as the principal
    evidence for the auditors use of the AAs work
    ( 53)

PC-5 on AuG-43
Paragraph 4
  • The auditor's objective is to obtain sufficient
    appropriate evidence to provide reasonable
    assurance that the policy liabilities are
    reasonable within the context of the financial
    statements as a whole.

PC-5 on AuG-43
Paragraph 4 - continued
  • In addition to performing appropriate procedures
    to test the calculation of the policy
    liabilities, the auditor also considers such
    factors as
  • the complexity and subjectivity involved in
    preparing the policy liabilities,
  • the availability and reliability of data,
  • the nature and extent of assumptions required and
  • the degree of uncertainty of future events.

PC-5 on AuG-43
Paragraph 4 - continued
  • Policy Liabilities are a point estimate rather
    than an estimated range
  • Different actuaries are likely to arrive at
    different point estimates due to the inherent
    uncertainties and judgments required in making
    such estimates
  • Estimates normally still within a reasonable

PC-5 on AuG-43
Paragraph 4 - continued
  • Differences between such estimates are not
    necessarily indicative of error, where the
    estimates are within a reasonable range
  • The auditor will need to consider a zone of
    reasonableness within which to accept the policy
    liabilities as being reasonable within the
    context of the financial statements as a whole

PC-5 on AuG-43
Determination of a Reasonable Range
  • Implies that the actuarial specialist will need
    to recalculate some policy liabilities
  • Extent of recalculation will depend
  • on nature of policy liabilities
  • internal control processes (such as SOX 404 or
    CPAB 52 -109)
  • Shifts some responsibility from the AA to the
    External Auditor, in consultation with the
    Actuarial Specialist, that the actuarial
    liabilities are materially correct in the
    financial statements
  • Auditor determines extent of recalculation needed

PC-5 on AuG-43
  • Actuarial specialist has to have access to
    companys actuarial database simultaneously with
  • Actuarial specialist has to provide audit team
    with reasonable range of estimates

PC-5 on AuG-43
  • Changes to Joint Policy Statement
  • Duplication of effort between the audit and OSFI
    External Review processes
  • CIA Practice Certificates for Actuarial
    Specialist may be require experienced FCIA

PC-5 on AuG-43
  • Potential CIA Guidance to Actuarial Specialists
  • Availability of sufficient number of independent
  • Impact of additional actuarial review on the
    audit fees

PC-5 on AuG-43
Possible Company Initiatives
  • What can company do to reduce actuarial efforts
  • Strong internal controls have potential to
    mitigating impact
  • Better documentation of internal actuarial
  • Complete financial statements using actuarial
    support based on Q3 (or even Q2) data
  • Additional internal actuarial effort

PC-5 on AuG-43
  • Jim Christie
  • 416-943-3468

PC-5 on AuG-43