CIA Materiality Flashcards
Situations in which materiality arises
- Inclusion - Whether an item shuold be considered
- Refinement - Whether an item is accurate enough
- Disclosure - Whether a fact needs to be reported
Define materiality
An omission, understatement, or overstatement is material if the actuary expects it materially to affect either the user’s decision making or the user’s reasonable expectations
What is materiality not ?
- Range of reasonable values in an actuarial estimate
* Inherent uncertainty associated with actuarial estimates
List factors affecting appropriate degree of rigor in establishing/communicating selected materiality level
Needs, skill, sophistication, and experience of the intended audience for the actuary’s work
List characteristics of an entity the materiality level is expected to vary according to
- Size
- Type of business
- Access to capital
- Stage in the organizational life cycle
- Net retention
- Financial strength
Discuss communication and disclosure to users concerning materiality
- Complexity of the concept
- Importance of the concept to users
- Sophistication of users
Give materiality level based on purpose and intended uses of work
- Regulatory and Solvency Issues
- Appraisal Work
- DCAT Work
- General Financial Statement Work
• Regulatory or solvency
Level is typically related to statutory surplus or the solvency benchmark ratio
• Appraisal work
Level is generally related to net worth, NI or Earnings Per Share
• DCAT work
Level is less rigorous than valuation work
• General financial statement work
Level is generally related to both NI and net capital
Discuss the level of appropriate description and disclosure of materiality in a report
Need to balance between to little and too much.
- Too much: exaggerate importance of minor matters
- Too little: deprives users of needed information
What qualitative and quantitative information best serves the user’s understanding and decision making?
On what does the actuary normally focuses when addressing materiality
The purpose of the work and its intended user(s)
Discuss change in materiality level
Normally, an actuary would not change materiality level significantly from year to year. Except when approaching a threshold or some external benchmark.
For example, if close to breaching regulatory action levels, would agree that good grounds for changing the selected level of materiality