Change In Audit Bill Saves Insurers Millions
Washington
A little noticed change in the recently enacted auditor independence legislation is expected to spare publicly traded insurers millions of dollars in excess and duplicative accounting costs.
Without the change, all publicly traded insurers might have been required to use two different auditing firms to conduct mandatory audits.
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 smaller insurers.
Allen Caskie, senior counsel with the American Council of Life Insurers in Washington, said the issue involved a section in 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 bill's original version were "bookkeeping or other services related to the accounting records or financial statements of the audit client."
Mr. Caskie said this posed a problem for publicly traded insurers, which are required to produce two types of audits–one using Generally Accepted Accounting Principles for the Securities and Exchange Commission, and one using statutory accounting for state regulators.
The original language of H.R. 3763 could have been construed as requiring insurers to use two different auditors. Ms. Willis said this would have been burdensome and expensive. While there are differences between GAAP and statutory accounting, she said, there are many similarities. Particularly for small companies, she 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. However, he said, there were fears that a fix 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 the bill needed to be altered.
Ms. Willis added that Sen. Mike Enzi, R-Wyo., also deserves credit for helping solve the problem. 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 fixing.
The problem was resolved by adding language to the bill 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 audits. Ms. Willis noted, however, that under the bill, a companys audit committee must approve the use of a single auditor.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 2, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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