ASOP 21: Responding to Auditors or Examiners in Connection with Financial Audits, Financial Reviews and Financial Examinations

Question 1

Section 1 - Purpose and Scope

Answer 1

1. Purpose: provide guidance to actuaries when providing actuarial services while responding to or assisting auditors or examiners in connection with a financial audit, review or examination
2. Scope: applies to actuaries when providing actuarial services as a responding actuary or as a reviewing actuary in connection with a financial audit or review in accordance with generally accepted auditing standards or a financial examination

Question 2

Section 2 - Definitions

Answer 2

1. Responding actuary: an actuary authorized by an entity to respond to the auditor or examiner with respect to specified elements of the entity’s financial audit, review or examination that are based on actuarial considerations
2. Reviewing actuary: an actuary designated by the auditor or examiner to assist with the financial audit, review or examination of specified elements of the financial statement that are based on actuarial considerations

Question 3

Section 3 - Analysis of Issues and Recommended Practices

1. Scope and Planning for a financial audit, review or examination
2. Discussion Between Responding Actuary and Entity
3. Relationship with entity whose financial statement is being reviewed
4. Communication from Responding Actuary
5. Request for Information
6. Documentation

Answer 3

1. Scope and Planning for a Financial Audit, Review or Examination
a. Reviewing actuary should understand the scope, as well as auditor’s/examiner’s expectations about nature, extent and timing

b. Reviewing actuary should inform responding actuary about scope and timing and describe the type of information to be requested

2. Discussion between Responding Actuary and Entity
a. Discuss nature, format and timing of responding actuary’s responses with the entity

3. Relationship with Entity Whose Financial Statement is Being Reviewed
a. Reviewing actuary should disclose any relationships to the auditor/examiner

4. Communication from Responding Actuary
a. Responding actuary should be appropriately responsive to requests from auditor/examiner

5. Requests for Information
a. Reviewing actuary and responding actuary should cooperate in compiling the information needed by the reviewing actuary

b. Information Request Communication
- Reviewing actuary should communicate (preferably in writing) what info is requested to perform the necessary procedures and also communicate the time frame

c. Responding to Requests for Information
- Responding actuary considerations:
i. Extent to which info is readily available
ii. If not available, what other info is readily available and could meet the needs
iii. Whether the info is within the scope of the project

d. Disagreement on Provision or Use of Information
- If disagreement between responding actuary or entity and the reviewing actuary, the reviewing actuary should discuss the issue with the auditor/examiner

e. Data, Assumptions, Methods, Models and Controls
- Responding actuary should be prepared to discuss
i. Data used
ii. Methods and assumption
iii. Source of assumptions not set by responding actuary
iv. Models used
v. Design and effectiveness of controls around process, procedures and models
vi. Any significant risks to entity
x. Reasoning to support results and conclusions

f. Changing Conditions
- Changes in operating environment
- Trends in experience
- Product or plan changes and changes in product mix or demographic mix
- Changes in entity’s policies or procedures or valuation bases
- Compliance with new or revised accounting rules, laws and regulations

g. Confidentiality
- Confidential information should be handled consistent with Precept 9 of Code of Professional Conduct

6. Documentation
a. Reviewing Actuary Documentation requirements
- Evidence that the reviewing actuary’s procedures have been planned and coordinated with the auditor
- Summary description of the items subject to the reviewing actuary’s audit
- Summary description of the procedures followed by the reviewing actuary
- Summary description of the results of the review, providing conclusions or findings

b. Responding Actuary
- Consider documenting information provided to the auditor/examiner

Question 4

Section 4 - Communications and Disclosures

Answer 4

1. Comply with ASOP 41
   o Any assumption or method prescribed by law
   o Reliance on other sources and disclaiming responsibility for method or assumption
   o Any material deviation from standard