Agenda 

• The Audit Environment Today
• The Audit Process and Audit Efficiency
• Management Oversight
• Year-round Relationships
• Value-Added Service

The Audit Environment Today

Today’s Audit Environment 

• Political Environment
  • 37 Governors’ races
  • Insurance Industry “bad” reputation
   
• Healthcare Reform
  • MLR’s
   
• Dodd-Frank
  • Financial Stability Oversight Council
  • Federal Insurance Office (FIO)
    • Missouri commissioner – John Huff
     
   
• Regulatory Changes
  • RBC
  • SSAP 10R
  • Solvency II
    • Capital Requirements
    • Governance, Risk Management and Supervision
    • Disclosure and Transparency
     
   
• Company Failures/Liquidations
• FASB & SAS
  • Codification
  • Record number of new pronouncements
   
• IFRS Conversion
  • Fair Market Value
  • Principles vs. Rules Based
   
• SSAP Impact?
• Other Factors
  • PCAOB
  • Peer Review
  • State Examinations
  • Audit Risk Alerts
   
• Changes in the Audit Environment require the auditor to change how they audit
  • Evaluate the environment
  • Evaluate the impact on audit client
  • Evaluate the clients’ assessment of risk and actions taken to remediate/mitigate
  • Design audit tests
   

The Audit Process and Audit Efficiency

Audit Requirements: 

• Audit Risk
  • Environmental Risk
  • Directional Risk
  • 8- Hour Risk
  • "What keeps you up at night?"
  • Historical Issues
   
• Fraud Risk
  • Who’s responsibility is it?
   
• Reputational Risk
• Regulator Risk
• Design Procedures to Respond to Risk
• Audit Approach
  • Balance Sheet Approach?
  • Leverage Existing Controls
    • Documented vs.
    • Undocumented
     
  • Materiality Concepts
  • Risk-Linked Procedures
  • Regulation Impact Considerations (Market Conduct)
  • Actuarial Reviews
   
• Audit Reporting
  • Financial Statements
  • Report to Audit Committee (SAS 61)
  • Independence
  • Qualifications
  • Internal Controls (115)
  • Awareness Letters
  • Audit Adjustments
   

Audit Efficiency 

• Know your auditor’s audit approach and be ready
• Understand the risks facing your company and have a plan
• Avoid the “dump and run”
• Planning meetings
• Schedule regular status meetings
• Prepare financial statements
• Computer Assisted Audit
• Ask for budget information
• Using a “Schedule of Schedules”
  • Target Dates
  • Responsible Persons
  • Processes and Controls Documentation
  • FTP Sites
   
• Auditor Focused Schedules
• Analytics
• MD&A
• Staff Availability
• On-site Technical Reviews

Management Oversight

• The role of management and owners
  • Depth of understanding of business
  • Control environment
  • “Tone at the Top”
   
• The role of financial managers
  • More than just financial planning
   
• Board of Directors
  • Understanding of financial statements
  • Understanding of Insurance Environment
   
• Audit Committees
  • Audit committee charter
  • Financial Statement Oversight
  • Statutory accounting concepts
   
• IT IS IMPORTANT TO MANAGE EXPECTATIONS
• Model Audit Rule Considerations
  • Audit Partner Rotation Requirements
  • Audit Committee Independence Rules
  • Internal Control Assessment
   

Year-Round Relationships with your Audit Team

• Include your auditors on distribution lists
  • Regulatory filings
  • Board packages
   
• Ask your auditors’ advice before making critical decisions
• Keep auditors informed regarding business changes
• Schedule interim meetings
• Have a closing meeting, ask the “how am I doing questions”

Value-Added Services

• Leverage your relationship with your auditor
  • Ask for auditor advice (Are they industry experts?)
  • Ask for input
  • Continuing communication
  • Tax planning
   
• Make management recommendation letters a positive rather than a negative
• Keeping informed regarding industry trends and technical pronouncements
• Training
• IT reviews
• State Examinations
  • Risk-focused exam approach relies heavily on Auditor Workpapers
  • Encourage a meeting
  • Make sure audit team fully cooperates with exam team
  • Examinations now require prospective risk analysis
   

Contact: Dianne Batistoni

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