Current through Register Vol. 46, No. 39, September 25, 2024
(a) A company
may utilize a CPA for the purposes specified in this Part provided that the
CPA:
(1) meets the definition of a CPA set
forth in section
89.1(g) of this
Part;
(2) has not 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
company;
(3) acts in conformity
with the standards of the accounting profession, such as set forth in the Code
of Professional Ethics of the AICPA and Rules and Regulations and Code of
Ethics of Professional Conduct of the New York Board of Public Accountancy, or
similar code; and
(4) utilizes its
staff consistent with the standard prescribed by generally accepted auditing
standards.
(b) A company
may enter into an agreement with a CPA to have disputes relating to an audit
resolved by mediation or arbitration. However, in the event of a proceeding
commenced under Insurance Law, article 74 against the company, the mediation or
arbitration provisions shall apply only with the permission of the successor of
the insurer as determined under that article.
(c)
(1) A
company shall not utilize the same lead or coordinating CPA as an audit partner
who has primary responsibility for the audit for more than five 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 consecutive years.
(2) A company may make application to the
superintendent for relief from the rotation requirement contained in paragraph
(1) of this subdivision on the basis of unusual circumstances. The application
shall be made at least 30 days before the end of the calendar year and include
the following details:
(i) number of
partners, expertise of the partners or the number of insurance clients in the
currently registered firm;
(ii)
premium volume of the company; and
(iii) number of jurisdictions in which the
company transacts business.
(3) If relief is granted from the
requirements of this subdivision, the company shall file a copy of each grant
of relief received by the company with each state in which it is licensed or
doing business and with the NAIC.
(d) A company may not utilize for any purpose
of this Part any work performed or prepared by a CPA who 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.
(e)
(1) A
company may not utilize for any purpose of this Part any work performed or
prepared by a CPA if that CPA also contemporaneously provides any of the
following non-audit services to that company:
(i) bookkeeping or other services related to
the accounting records or financial statements of the company;
(ii) financial information systems design and
implementation;
(iii) appraisal or
valuation services, fairness opinions, or contribution-in-kind
reports;
(iv) actuarial advisory
services involving the determination of amounts recorded in the financial
statements. However, the CPA may assist a company in understanding the methods,
assumptions and inputs used to determine amounts recorded in the financial
statement, but only if it is reasonable to conclude that those amounts will not
be subject to question during an audit of the company's financial statements. A
CPA's actuary may also issue an actuarial opinion or certification (opinion) on
a company's reserves if the following conditions have been met:
(a) neither the CPA nor the CPA's actuary has
performed any management functions or made any management decisions;
(b) the company has competent personnel (or
engages a third party actuary) to estimate the reserves for which management
takes responsibility; and
(c) the
CPA's actuary tests the reasonableness of the reserves after the company's
management has determined the amount of the reserves;
(v) internal audit outsourcing
services;
(vi) management functions
or human resources;
(vii) broker or
dealer, investment adviser, or investment banking services; or
(viii) legal services or expert services
unrelated to the audit.
(2) The company shall attach a statement to
its audited annual financial statement, when filed, that the CPA does not
function in the role of management, does not audit his or her own work, and
does not serve in an advocacy role for the company.
(f) A company may permit a CPA who performs
the audit to engage in non-audit services, including tax and other services,
which are not prohibited by paragraph (e)(1) of this section, but only if the
activity is approved in advance by the audit committee, in accordance with
subdivision (h) of this section.
(g) A company having direct written and
assumed premiums of less than $100,000,000 in any calendar year may request an
exemption from paragraph (e)(1) of this section. The company shall file with
the superintendent a written statement discussing the reasons why the company
should be exempt from these provisions. The superintendent may grant the
exemption upon a finding that compliance would constitute a financial or
organizational hardship upon the company.
(h) The company's audit committee shall
pre-approve all auditing services and non-audit services provided to the
company by a CPA of the company except that a company need not preapprove
non-audit services if:
(1) the company is a
SOX compliant company or a direct or indirect wholly-owned subsidiary of a SOX
compliant company; or
(2)
(i) the aggregate amount of all such
non-audit services provided to the company constitute five percent or less of
the total amount of fees paid by the company to its CPA during the fiscal year
in which the non-audit services are provided;
(ii) the services were not recognized by the
company at the time of the engagement to be non-audit services; and
(iii) 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.
(i) The audit committee
may delegate to one or more designated members of the audit committee the
authority to grant the pre-approvals required by subdivision (h) of this
section. 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.
(j)
(1) A company shall not utilize a CPA 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 company, was employed by the CPA and participated
in the audit of that company during the one-year period preceding the date that
the most current statutory opinion is due. This section shall only apply to
partners and senior managers involved in the audit. A company may make
application to the superintendent for relief from the above requirement on the
basis of unusual circumstances.
(2)
The company shall file, with its annual statement filing, the approval for
relief from paragraph (1) of this subdivision with the NAIC and the states in
which the company is licensed in or otherwise doing business.
