Audit Bill Change Saves Insurer Costs

By Steven Brostoff, Washington Editor

NU Online News Service, Aug. 28, 11:30 a.m.EST?Industry lobbyists said a little noticed change theysecured in the recently enacted auditor independence legislation isexpected to spare publicly traded insurance companies millions ofdollars in excess and duplicative accounting costs.

Without the change, all publicly traded insurance companies mayhave been required to use two different auditing firms to conductmandatory audits, they said.

Catherine Willis, director of government relations for the DesPlaines, Ill.-based National Association of Independent Insurers,said this would have imposed burdensome and duplicative costs onall NAII members, in particular the smaller members of theassociation.

Allen Caskie, senior counsel with the Washington-based AmericanCouncil of Life Insurers, said the issue involved a section in thelegislation, H.R. 3763, that identifies certain non-audit servicesthat accounting firms are prohibited from providing to auditclients.

Among the banned services in the original version of thelegislation were "bookkeeping or other services related to theaccounting records or financial statements of the audit client,"the legislation says.

Mr. Caskie said this posed a problem for publicly tradedinsurance companies, which are required to produce two types ofaudits: One using Generally Accepted Accounting Principles for theSecurities and Exchange Commission, and using statutory accountingfor state regulators.

The original language of H.R. 3763 could have been construed asrequiring insurance companies to use two different auditors.

Ms. Willis said this would have been burdensome and expensive.While there are differences between GAAP accounting and statutoryaccounting, she said, there are many similarities.

Particularly for small companies, Ms. Willis said, using twodifferent auditors would have been very costly.

Mr. Caskie said that when the insurance industry raised theissue with the Senate Banking Committee, the members and staff weresympathetic to the industry's concerns.

However, he said, there were fears that a change might beperceived as giving the insurance industry a special deal.

After several attempts to fix the problem were rejected, Mr.Caskie said, the Kansas City, Mo.-based National Association ofInsurance Commissioners weighed in on the issue and insisted thatit needed to be altered.

Ms. Willis added that Sen. Mike Enzi, R-Wyo., also deservescredit for helping to solve the problem.

Indeed, she said, the insurance audit issue was on a list ofitems Sen. Enzi discussed directly with Senate Banking CommitteeChairman Paul Sarbanes, D-Md., which Sen. Enzi said neededrevision.

The problem was resolved by adding language to the legislationthat, in effect, defines "statutory audits required for insurancecompanies for purposes of state law" as an audit service ratherthan a non-audit service, thus allowing a single auditor to do bothstatutory and GAAP audits.

Ms. Willis noted, however, that under the legislation, acompany's audit committee must approve the use of a singleauditor.