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 they secured in the recently enacted auditor independence legislation is expected to spare publicly traded insurance companies millions of dollars in excess and duplicative accounting costs.

Without the change, all publicly traded insurance companies may have been required to use two different auditing firms to conduct mandatory audits, they said.

Catherine Willis, director of government relations for the Des Plaines, Ill.-based National Association of Independent Insurers, said this would have imposed burdensome and duplicative costs on all NAII members, in particular the smaller members of the association.

Allen Caskie, senior counsel with the Washington-based American Council of Life Insurers, said the issue involved a section in the legislation, H.R. 3763, that identifies certain non-audit services that accounting firms are prohibited from providing to audit clients.

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

Mr. Caskie said this posed a problem for publicly traded insurance companies, which are required to produce two types of audits: One using Generally Accepted Accounting Principles for the Securities and Exchange Commission, and using statutory accounting for state regulators.

The original language of H.R. 3763 could have been construed as requiring 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 statutory accounting, she said, there are many similarities.

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

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

However, he said, there were fears that a change might be perceived 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 of Insurance Commissioners weighed in on the issue and insisted that it needed to be altered.

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

Indeed, she said, the insurance audit issue was on a list of items Sen. Enzi discussed directly with Senate Banking Committee Chairman Paul Sarbanes, D-Md., which Sen. Enzi said needed revision.

The problem was resolved by adding language to the legislation that, in effect, defines "statutory audits required for insurance companies for purposes of state law" as an audit service rather than a non-audit service, thus allowing a single auditor to do both statutory and GAAP audits.

Ms. Willis noted, however, that under the legislation, a company's audit committee must approve the use of a single auditor.

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Audit Bill Change Saves Insurer Costs

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