SESSION H6 PD Generally Accepted Auditing Standards. Jim Doherty, FCIA Partner Ernst & Young L.P.

Transcription

1 SESSION H6 PD Generally Accepted Auditing Standards Jim Doherty, FCIA Partner Ernst & Young L.P.

2 Agenda Overview of Audit practices in Canada and US in the auditing of actuarial liabilities Changes in the Audit Environment The Future - developments in the auditing of actuarial liabilities

3 Canadian GAAS Recent Past Statutory Reporting = GAAP Reporting Audit of actuarial results Trust but verify CICA Audit Guidance Reliance on a specialist Reliance on the Appointed Actuary Insurance Companies Act permits use of the work of the Appointed Actuary Joint Policy Statement

4 Canadian GAAS Recent Past CICA - Reliance on a Specialist Significance of specialist s work Complexity of subject matter Existence of recognized criteria concerning the subject matter Inherent risk associated with the source data Confidence in specialist s expertise and competence Objectivity and independence of specialist Ease of communication with the specialist

5 Canadian GAAS Recent Past Auditor forms a basis for reliance Review of actuarial processes Data Methodology Assumptions Systems Controls Within standards of practice Audit is not an External Review (peer review) External Review is more in the nature of a second opinion on assumptions, etc.

6 US GAAS GAAP Reporting not the same as Statutory Reporting Audit of actuarial results No Appointed Actuary structure under GAAP No reliance on a specialist Review of actuarial processes Within range of accepted actuarial practice Includes a re-calculation of reserves by external audit

7 That was the past

8 Changing Business Environment Company Changes Demutualized companies Quarterly reporting Pressure to make analyst expectations Appointed Actuary The role has changed e.g. CRO now performs work Appointed Actuary did in the past The independence of the Appointed Actuary, as an employee, may be open to challenge by the public Increasing sophistication & complexity of valuation models

9 Changing Business Environment Market Conditions Failures Enron, Worldcom, Parmalat, etc. Restatements - Income Statement and Balance Sheet Nortel, Equitable Life Increasing Audit Partner responsibility and discomfort Legislation, Regulation & Oversight Sabanes Oxley Act (US) CSA (Canada) PCAOB (US) / CPAB (Canada) Audit Guidance AuG 15 The bar has been raised and will rise further

10 The Audit Evolving Continue to Trust but verify The search for fraud: risk assessment (inquiry based), control evaluation and additional audit procedures Insignificant accounts no longer scoped out Tighter I.T. control assessment Fuller Audit Committee communications

11 Auditors/Actuaries The Context Under SOX 404/CSA management must evaluate/certify on internal controls auditor must report on internal controls Documentation of processes and controls If it isn t documented it doesn t exist Reserve determination processes will have to be better documented and more disciplined Auditor s opinion must be based on principal evidence

12 Auditors/Actuaries The Context Auditors Own work must provide the Principal Evidence for Opinion must perform sufficient testing so that auditor's own work provides the principal evidence for the auditor's opinion may use work of others (e.g. internal auditors) to alter the nature, timing and extent of auditor s work Judgment about principal evidence is qualitative as well as quantitative Responsibility to report on the effectiveness of internal controls rests solely with the auditor When the auditor uses the work of others, the auditor is responsible for the results of their work

13 What Next for C GAAS? AuG 15 audit of life insurance policy liabilities A A number of changes to audit standards, including Where appropriate, eliminate differences between US and Canada audit practices Reliance by the External Auditor on the Appointed Actuary will change. More Verification

14 SESSION H6 PD Generally Accepted Auditing Standards Jim Doherty, FCIA Partner Ernst & Young L.P.