CIA Materiality Flashcards
Define Materiality
An omission/understatements/overstatement is considered to be MATERIAL if the actuary expects it to be MATERIALLY AFFECT the user’s decision-making or reasonable expectations.
What materiality IS NOT. (2)
- materiality is NOT a range of reasonable values around actuarial estimate
- materiality is NOT inherent uncertainty in an actuarial estimate
Identify the main consideration in setting a materiality level. (2)
To SPECIFY:
- use of work, intended users
- there is no obligation to communicate with other than the intended audience
Identify when the materiality level should change.
- when an external BENCHMARK is approached (eg: regulatory action level)
- otherwise, it should be consistent over time AND between valuations
Identify characteristics of an insurance company that may affect materiality. (6)
- financial strength
- size of entity
- type of business
- access to capital
- net retention
- stage of organization’s life cycle
Identify a metric to test materiality for regulatory (or solvency) purposes. (2)
- statutory surplus
- solvency benchmark ratio
Identify a metric to test materiality for appraisals. (3)
- net worth
- net income
- EPS (earnings per share)
Identify a metric to test materiality for general purpose financial statements. (2)
- statutory surplus
- net income
Identify which application has less rigorous materiality level, DCAT or valuation.
DCAT is less rigorous (so materiality standard is higher)
DCAT: used for surplus in scenario-testing
Valuation: this impacts net income which is more important, and need to detect smaller deviations here
Considerations for extent of disclosure of materiality. (3)
- sophistication of users
- important of concept to users
- complexity of concept
Possible actions of report-writer based on materiality. (3)
INCLUDE ITEM? whether item should be CONSIDERED
REFINE ITEM? whether item is sufficiently ACCURATE
DISCLOSE ITEM? whether item should be REPORTED
