Chicago, Ill. - If revisions to the Model Audit Rule, formally known as the Model Regulation Requiring Annual Audited Financial Reports, are passed, insurance companies with more than $500 million in direct and assumed premiums will be required to perform an annual assessment of their internal controls that apply to financial reporting.
The revisions, which were submitted to the National Association of Insurance Commissioners at its winter meeting in Chicago this week by the Title IV subgroup, were presented to the NAIC/American Institute of Certified Public Accountants working group.
The revisions incorporate certain best practices contained in Title IV: Enhanced Financial Disclosures of the Sarbanes-Oxley Act of 2002, and are the result of numerous face-to-face meetings with interested parties and trade associations over the past year, the Kansas City, Mo.-based NAIC reports.
Besides the annual assessment, companies would report to its domiciliary state insurance department regarding any unremediated material weaknesses. These revisions represent a compromised approach on the part of the regulators as previous revisions included only a $25 million premium exemption and an additional attestation by the company's auditors regarding management's assessment.
To ensure a smooth transition, the subgroup members and interested parties will be developing an implementation guide for use by companies subject to the requirements. In addition, members of the subgroup contend that the companies will be given sufficient time to prepare for the new requirements prior to the actual effective date.
The subgroup's recommendation was considered by the NAIC/AICPA working group, which voted to formally expose the subgroup's revisions, as well as other adopted revisions related to auditor independence and corporate governance adopted by the working group in May and June 2005, respectively. The collective revisions to the Model Audit Rule will be exposed for a 45-day period. Comment letters will be discussed via a series of conference calls to be held prior to the 2006 Spring National Meeting.
Once the revisions related to internal controls over financial reporting are adopted by the Working Group, all three sections will be forwarded to the Financial Condition (E) Committee for consideration.
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