Title Details

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.

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