CIA Materiality Flashcards

1
Q

Situations in which materiality arises

A
  • Inclusion - Whether an item shuold be considered
  • Refinement - Whether an item is accurate enough
  • Disclosure - Whether a fact needs to be reported
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2
Q

Define materiality

A

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

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3
Q

What is materiality not ?

A
  • Range of reasonable values in an actuarial estimate

* Inherent uncertainty associated with actuarial estimates

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4
Q

List factors affecting appropriate degree of rigor in establishing/communicating selected materiality level

A

Needs, skill, sophistication, and experience of the intended audience for the actuary’s work

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5
Q

List characteristics of an entity the materiality level is expected to vary according to

A
  • Size
  • Type of business
  • Access to capital
  • Stage in the organizational life cycle
  • Net retention
  • Financial strength
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6
Q

Discuss communication and disclosure to users concerning materiality

A
  • Complexity of the concept
  • Importance of the concept to users
  • Sophistication of users
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7
Q

Give materiality level based on purpose and intended uses of work

  1. Regulatory and Solvency Issues
  2. Appraisal Work
  3. DCAT Work
  4. General Financial Statement Work
A

• 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

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8
Q

Discuss the level of appropriate description and disclosure of materiality in a report

A

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?

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9
Q

On what does the actuary normally focuses when addressing materiality

A

The purpose of the work and its intended user(s)

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10
Q

Discuss change in materiality level

A

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

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