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05 April 2011

IAIS commented on the IAASB Strategy and Work Programme for 2012-2014


The IAIS comments on IAASB Strategy and Work Programme for 2012-2014 – re guidance for the audit of insurance contracts. The IAIS has significant interest in the future work of the IAASB, and strongly supports the IAASB's efforts to develop high-quality standards, in the public interest.

The IAIS appreciates that the IAASB has scarce resources and must appropriately prioritise the use of those resources. The IAIS also appreciates that the IAASB does not intend to develop industry-specific standards or guidance. However, the IAIS believes there is an emerging need for the development of guidance for the audit of insurance contracts (note not the audit of insurers specifically). The time is now right to consider this development, as it will be particularly pertinent in the period from 2012 to 2014.
 
The IASB issued its Exposure Draft ED 2010/8 'Insurance Contracts' on 30 July. The IAIS understands the intention of the IASB is to finalise the resultant standard by June 2011 for implementation in 2013. This development will lead to the convergence of accounting for insurance contracts around the globe away from the current multiple approaches under national generally accepted accounting principles. It will also lead to changes in many jurisdictions regarding how insurance companies account for insurance contracts, including the use of significant judgement in developing accounting estimates. In many cases, those accounting estimates will be developed with the assistance of actuaries. A key issue will be the relationship between auditors and actuaries in the preparation of financial statements, and when there is a need for the auditor to have an actuary as part of the audit team.
 
If the IAASB undertakes this work, it would not be starting from a blank page. Some national auditing standard setters have already issued pronouncements on auditing insurance companies generally, and actuarially determined liabilities specifically. In addition, in 2009 the IAIS published its Issues Paper on 'The Roles of and Relationship Between the Actuary and the External Auditor in the Preparation and Audit of Financial Reports' (the IAIS Issues paper). This provides a starting point for exploring issues specific to the audit of insurance contracts. The IAIS typically produces an issues paper ahead of exploring the issues in more detail through developing standards and guidance within the framework of its Insurance Core Principles. The IAIS believes that it would be more fruitful to explore these issues in conjunction with the IAASB, rather than pursuing further development on its own. The involvement of the International Actuarial Association would also be welcome. Therefore, the IAIS would be willing to provide resources to a working party to develop an IAPS for the audit of insurance contracts.
 
The ISA 540 'Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures and ISA 620 Using the Work of an Auditor’s Expert' address, at a high-level, some of the key issues involved in auditing insurance contracts. However, the IAIS believes there are additional complexities to the audit of insurance contracts that could be addressed in an IAPS.
 
The existing work on Proposed IAPS 1000, 'Special Considerations in Auditing Complex Financial Instruments', will address many issues with auditing the asset side of an insurer’s balance sheet. In a similar vein, the development of an IAPS covering special considerations in auditing insurance contracts would address significant complexities with the liability side of an insurer’s balance sheet. The IAIS believes they are of equal importance.

Full paper


© IAIS - International Association of Insurance Supervisors

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