TY - BOOK ED - American Institute of Certified Public Accountants. TI - Property and Liability Insurance Entities 2019 SN - 9781119699095 U1 - 657.8335 23 PY - 2020/// CY - Newark PB - John Wiley & Sons, Inc. KW - Property insurance KW - United States KW - Property insurance KW - Auditing KW - Liability insurance KW - Accounting KW - Electronic books N1 - ABOUT THE AUTHOR The American Institute of CPAs (AICPA) is the world's largest member association representing the CPA profession, with more than 429,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education, and consulting. The AICPA sets ethical standards for its members and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA examination, offers specialized credentials, builds the pipeline of future talent and drives professional competency development to advance the vitality, relevance and quality of the procession; TABLE OF CONTENTS 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 .76Additional Guidance When Statutory Accounting Practices .77-.104 Generally Accepted Accounting Principles .105-.112 Comparison of SAP and GAAP .113 2 Audit Considerations .01-.178 Introduction .01 Scope of the Audit Engagement .02-.05 General Considerations .02-.04 Integrated Audit of Financial Statements and Internal Control Over Financial Reporting .05 Planning and Other Auditing Considerations .06-.65 Audit Planning .07-.08 Audit Risk .09-.13 Risk Assessment Procedures .14-.19 Understanding the Entity, Its Environment, and Its Internal Control .20-.39 Common Industry Ratios and Performance Metrics .40-.52 Identifying and Assessing the Risks of Material Misstatement .53-.56 Performing Audit Procedures in Response to Assessed Risks .57-.63 Use of Assertions in Obtaining Audit Evidence .64-.65 Other Risk Assessment Activities and Considerations .66-.70 Planning Materiality .66-.68 Performance Materiality and Tolerable Misstatement .69-.70 Consideration of Fraud in a Financial Statement Audit .71-.72 Insurance Industry — Fraud Risk Factors .73-.95 The Importance of Exercising Professional Skepticism .75 Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud .76-.79 Obtaining the Information Needed to Identify the Risks of Material Misstatement Due to Fraud .80-.81 Identifying Risks That May Result in a Material Misstatement Due to Fraud .82-.86 Assessing the Identified Risks After Taking an Evaluation of the Entity’s Programs and Controls That Address the Risks Into Account .87-.88 Responding to the Results of the Assessment .89 Evaluating Audit Evidence .90 Responding to Misstatements That May Be the Result of Fraud .91-.92 Communicating About Possible Fraud to Management, Those Charged With Governance, and Others .93-.94 Documentation and Guidance .95 Use of Information Technology .96-.99 Going Concern Considerations .100-.108 Evaluating Misstatements .109-.112 Audit Documentation .113-.121 Consideration of the Work of Internal Auditors .120-.121 Communication of Matters Related to Internal Control .122-.129 Identification of Deficiencies in Internal Control .123-.124 Communication of Deficiencies in Internal Control .125-.129 Communication of Other Matters With Those Charged With Governance .130-.134 Matters to Be Communicated .132-.134 Communications by Successor Auditors .135 Auditor Independence .136-.137 Auditing Fair Value Measurements and Disclosures .138-.140 Considerations for Auditors to Comply With the NAIC Model Audit Rule .141-.162 Awareness .142-.143 Change in Auditor .144 Auditor’s Letter of Qualifications .145 Qualifications of the Auditor .146 Indemnification .147 Partner Rotation .148 Prohibited Services .149-.151 Consideration of Internal Controls in a Financial Statement Audit .152 Notification of Adverse Financial Condition .153-.154 Report on Internal Controls .155-.157 Working Papers .158 Communications to Audit Committees .159 Management’s Report on Internal Controls Over Financial Reporting .160-.162 Auditor’s Consideration of State Regulatory Examinations .163-.167 Auditor’s Consideration of Permitted Statutory Accounting Practices .168-.172 SEC Requirements for Management’s Report on Internal Control Over Financial Reporting .173-.178 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 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-.253 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 Disclosures .34-.35 Fair Value Option .36-.38 Statutory Accounting .39-.40 Accounting Practices .41-.226 Significant Differences Between GAAP and Statutory Accounting .42 Cash and Cash Equivalents .43-.50 Debt and Equity Securities .51-.100 Mortgage Loans .101-.115 Troubled Debt Restructurings .116-.124 Real Estate .125-.135 Derivatives, Including Futures, Options, and Similar Financial Instruments .136-.150 Joint Ventures and Partnerships .151-.167 Investments in SCA Entities .168-.184 Investment Income Due and Accrued .185-.190 Asset Transfers and Extinguishments of Liabilities .191-.204 Repurchase Agreements .205-.217 Securities Lending .218-.225 Other Information .226 Auditing Investments .227-.253 Audit Planning .227 Consideration of Fraud in a Financial Statement Audit .228 Audit Risk Factors — Investments .229-.232 Risk of Material Misstatement — Inherent Risk .233-.235 Internal Control .236-.238 Control Environment .239 Risk Assessment Process .240-.241 Information System .242-.243 Control Activities .244 Service Organizations .245-.248 Audit Procedures Responsive to the Assessed Risks of Material Misstatement .249-.250 Group Audit Considerations for Investments in Alternative Investments and Subsidiary, Controlled and Affiliated Entities .251 Audit Consideration Chart and Procedures .252-.253 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 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-.65 Introduction .01-.02 GAAP Accounting for Income Taxes .03-.41 Basic Principles of GAAP Accounting for Income Taxes .05-.25 Disclosure Requirements Contained in GAAP Literature .26-.41 Statutory Accounting for Income Taxes .42-.49 Disclosure Requirements Contained in Statutory Literature .49 Changes in Tax Law .50 Auditing Income Taxes .51-.65 Audit Planning .51 Consideration of Fraud in a Financial Statement Audit .52 Audit Risk Factors — Income Taxes .53-.55 Risk of Material Misstatement — Inherent Risk .56 Internal Control .57-.58 Control Environment .59 Risk Assessment Process .60-.61 Control Activities .62 Audit Procedures Responsive to the Assessed Risks of Material Misstatement .63-.64 Audit Consideration Chart .65 8 Insurance-Related Expenses, Taxes, and Assessments .01-.79 Introduction .01-.05 Premium and State Taxes .06-.12 Guaranty Fund and Other Assessments .13-.52 Generally Accepted Accounting Principles .19-.22 Statutory Accounting Principles .23-.30 The Patient Protection and Affordable Care Act .31-.52 Capitalized Costs and Certain Nonadmitted Assets .53-.57 Pensions .58-.61 Audit Considerations .62-.79 Audit Planning .62 Consideration of Fraud in a Financial Statement Audit .63 Audit Risk Factors .64-.66 Internal Control .67-.69 Audit Procedures Responsive to the Assessed Risks of Material Misstatement .70-.79 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-.75 Reports on Financial Statements .01-.02 Unmodified Opinions on GAAP Financial Statements .03-.04 Modified Opinions .05-.23 Qualified Opinion .09-.10 Disclaimer of Opinion .11-.13 Adverse Opinion .14-.16 Emphasis-of-Matter Paragraphs .17-.22 Evaluating Consistency of Financial Statements .23 Additional Guidance When Performing Integrated Audits of Financial Statements and Internal Control Over Financial Reporting .24 Integrated Audits Performed in Accordance With GAAS .24 Auditors’ Reports on Statutory Financial Statements of Insurance Entities .25-.44 NAIC — Codified Statutory Accounting .26-.28 Regulatory Basis Financial Statements Intended for General Use .29-.33 Regulatory Basis Financial Statements Intended for Limited Use .34-.38 Regulatory Basis Financial Statements — Other Issues .39-.44 Correction of Error .45-.50 Correction of an Error — Regulatory Basis Financial Statements Intended for General Use .49 Correction of an Error — Regulatory Basis Financial Statements Intended for Limited Use .50 Opinion on Supplemental Schedules .51-.57 Other Reports .58-.75 Accountant’s Awareness Letter .59-.61 Change in Auditor Letter .62-.65 Notification of Adverse Financial Condition Letter .66-.69 Auditor Reports for Communicating Unremediated Material Weaknesses in Internal Control to Insurance Regulators .70-.73 Accountant’s Letter of Qualifications .74-.75 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 N2 - Stay up−to−date on current GAAP and statutory accounting and audit guidance for property and liability insurance entities. This guide provides a good grounding on the industry, its products and regulatory issues, and the related transaction cycles that a property and liability insurance entity is involved with. Relevant guidance contained in standards issued through September 1, 2019, is covered, including the following: FASB ASU No. 2017−12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities SSAP No. 26R, Bonds SSAP No. 43R, Loan-backed and Structured Securities SSAP No. 97, Investments in Subsidiary, Controlled and Affiliated Entities Revised for SSAP No. 101, Income Taxes, and NAIC INT 18−03, Additional Elements Under the Tax Cuts and Jobs Act Key topics covered: Understand current GAAP and statutory accounting for property and liability insurance entities. Get authoritative accounting and auditing guidance applicable to property and liability Understand current GAAP and statutory accounting for property and liability insurance entities. Get authoritative accounting and auditing guidance applicable to property and liability insurance entities. Properly develop an audit plan for auditing loss reserves. Easily educate your staff on property and liability insurance UR - https://onlinelibrary.wiley.com/doi/book/10.1002/9781119699095 ER -