Current through Register Vol. 43, No. 02, November 27, 2024
(1) The commissioner shall not recognize a
person or firm as a qualified independent certified public accountant if the
person or firm:
(a) Is not in good standing
with the AICPA and in all states in which the accountant is licensed to
practice, or, for a Canadian or British company, that is not a chartered
accountant.
(b) Has either directly
or indirectly entered into an agreement of indemnity or release from liability
(collectively referred to as
indemnification) with respect to
the audit of the insurer.
(2) Except as otherwise provided in this
chapter, the commissioner shall recognize an independent certified public
accountant as qualified as long as he or she conforms to the standards of his
or her profession, as contained in the Code of Professional Ethics of the AICPA
and Rules and Regulations and Code of Ethics and Rules of Professional Conduct
of the Alabama Board of Public Accountancy, or similar code.
(3) A qualified independent certified public
accountant may enter into an agreement with an insurer to have disputes
relating to an audit resolved by mediation or arbitration. However, in the
event of a delinquency proceeding commenced against the insurer under Sections
27-32-1, et seq., Code
of Ala. 1975, the mediation or arbitration provisions shall
operate at the option of the statutory successor.
(4)
(a) The
lead (or coordinating) audit partner (having primary responsibility for the
audit) may not act in that capacity for more than five (5) consecutive years.
The person shall be disqualified from acting in that or a similar capacity for
the same company or its insurance subsidiaries or affiliates for a period of
five (5) consecutive years. An insurer may make application to the commissioner
for relief from the above rotation requirement on the basis of unusual
circumstances. This application should be made at least thirty (30) days before
the end of the calendar year. The commissioner may consider the following
factors in determining if the relief should be granted:
1. Number of partners, expertise of the
partners or the number of insurance clients in the currently registered
firm.
2. Premium volume of the
insurer.
3. Number of jurisdictions
in which the insurer transacts business.
(b) The insurer shall file, with its annual
statement filing, the approval for relief from paragraph (4)(a) with the states
that it is licensed in or doing business in and with the NAIC. If the
nondomestic state accepts electronic filing with the NAIC, the insurer shall
file the approval in an electronic format acceptable to the NAIC.
(5) The commissioner shall neither
recognize as a qualified independent certified public accountant, nor accept an
annual audited financial report, prepared in whole or in part by, a natural
person who:
(a) Has been convicted of fraud,
bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act,
18
U.S.C. Sections 1961 to
1968,
or any dishonest conduct or practices under federal or state law;
(b) Has been found to have violated the
insurance laws of this state with respect to any previous reports submitted
under this chapter; or
(c) Has
demonstrated a pattern or practice of failing to detect or disclose material
information in previous reports filed under the provisions of this
chapter.
(6) The
commissioner of insurance, as provided in Section
27-2-20, Code of Ala.
1975, may, as provided in Section
27-2-28, Code of Ala.
1975, hold a hearing to determine whether an independent certified
public accountant is qualified and, considering the evidence presented, may
rule that the accountant is not qualified for purposes of expressing his or her
opinion on the financial statements in the annual audited financial report made
pursuant to this regulation and require the insurer to replace the accountant
with another whose relationship with the insurer is qualified within the
meaning of this chapter.
(7)
(a) The commissioner shall not recognize as a
qualified independent certified public accountant, nor accept an annual audited
financial report, prepared in whole or in part by an accountant who provides to
an insurer, contemporaneously with the audit, any of the following non-audit
services:
1. Bookkeeping or other services
related to the accounting records or financial statements of the
insurer.
2. Financial information
systems design and implementation.
3. Appraisal or valuation services, fairness
opinions, or contribution-in-kind reports.
4. Actuarially-oriented advisory services
involving the determination of amounts recorded in the financial statements.
The accountant may assist an insurer in understanding the methods, assumptions
and inputs used in the determination of amounts recorded in the financial
statement only if it is reasonable to conclude that the services provided will
not be subject to audit procedures during an audit of the insurer's financial
statements. An accountant's actuary may also issue an actuarial opinion or
certification ("opinion") on an insurer's reserves if all of the following
conditions have been met:
(i) Neither the
accountant nor the accountant's actuary has performed any management functions
or made any management decisions.
(ii) The insurer has competent personnel (or
engages a third party actuary) to estimate the reserves for which management
takes responsibility.
(iii) The
accountant's actuary tests the reasonableness of the reserves after the
insurer's management has determined the amount of the reserves.
5. Internal audit outsourcing
services.
6. Management functions
or human resources.
7. Broker or
dealer, investment adviser, or investment banking services.
8. Legal services or expert services
unrelated to the audit.
9. Any
other services that the commissioner determines, by regulation, are
impermissible.
(b) In
general, the principles of independence with respect to services provided by
the qualified independent certified public accountant are largely predicated on
three basic principles, violations of which would impair the accountant's
independence. The principles are that the accountant cannot function in the
role of management, cannot audit his or her own work, and cannot serve in an
advocacy role for the insurer.
(8) Insurers having direct written and
assumed premiums of less than $100,000,000 in any calendar year may request an
exemption from paragraph (7)(a). The insurer shall file with the commissioner a
written statement discussing the reasons why the insurer should be exempt from
these provisions. If the commissioner finds, upon review of this statement,
that compliance with this chapter would constitute a financial or
organizational hardship upon the insurer, an exemption may be
granted.
(9) A qualified
independent certified public accountant who performs the audit may engage in
other non-audit services, including tax services, that are not described in
paragraph (7)(a) or that do not conflict with paragraph (7)(a), only if the
activity is approved in advance by the audit committee, in accordance with
paragraph (10).
(10) All auditing
services and non-audit services provided to an insurer by the qualified
independent certified public accountant of the insurer shall be preapproved by
the audit committee. The preapproval requirement is waived with respect to
non-audit services if the insurer is a SOX Compliant Entity or a direct or
indirect wholly-owned subsidiary of a SOX Compliant entity or:
(a) The aggregate amount of all such
non-audit services provided to the insurer constitutes not more than five
percent (5%) of the total amount of fees paid by the insurer to its qualified
independent certified public accountant during the fiscal year in which the
non-audit services are provided;
(b) The services were not recognized by the
insurer at the time of the engagement to be non-audit services; and
(c) The services are promptly brought to the
attention of the audit committee and approved prior to the completion of the
audit by the audit committee or by one or more members of the audit committee
who are the members of the board of directors to whom authority to grant such
approvals has been delegated by the audit committee.
(11) The audit committee may delegate to one
or more designated members of the audit committee the authority to grant the
preapprovals required by paragraph (10). The decisions of any member to whom
this authority is delegated shall be presented to the full audit committee at
each of its scheduled meetings.
(12) The commissioner shall not recognize an
independent certified public accountant as qualified for a particular insurer
if a member of the board, president, chief executive officer, controller, chief
financial officer, chief accounting officer, or any person serving in an
equivalent position for that insurer, was employed by the independent certified
public accountant and participated in the audit of that insurer during the
one-year period preceding the date that the most current statutory opinion is
due. This rule shall only apply to partners and senior managers involved in the
audit. An insurer may make application to the commissioner for relief from the
above requirement on the basis of unusual circumstances.
(b) The insurer shall file, with its annual
statement filing, the approval for relief from paragraph (12)(a) with the
states that it is licensed in or doing business in and the NAIC. If the
nondomestic state accepts electronic filing with the NAIC, the insurer shall
file the approval in an electronic format acceptable to the NAIC.
Author: Commissioner of Insurance
Statutory Authority:
Code of Ala.
1975, §§
27-2-17,
27-3-26,
27-7-43.