CIA.Mat Flashcards
Define materiality
An omission / under-statement / over-statement is MATERIAL if the actuary expects it to MATERIALLY AFFECT the user’s decision-making or reasonable expectations
What materiality IS NOT? (2)
- NOT a range of reasonable values around actuarial estimate
- NOT inherent uncertainty in an actuarial estimate
Identify the main consideration in setting a materiality level
SPECIFY:
- use of work, intended users
- (there is no obligation to communicate with other than intended audience)
Identify under which circumstances the materiality level should change
When an external BENCHMARK is approached (Ex: regulatory action level)
Otherwise, it should be consistent over time AND between valuations
Identify 4 characteristics of an insurance company that may affect materiality
- 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
- Statutory surplus
- Solvency benchmark ratio
Identify a metric to test materiality for appraisals
- Net worth
- Net income
- EPS (earnings per share)
Identify a metric to test materiality for general purpose financial statements
- Statutory surplus
- Net income
Identify which application has a 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
- need to detect smaller deviations here
Identify 3 considerations for extent of disclosure of materiality
(Hint: SSC)
- Sophistication of user
- Significance to user
- Complexity of concept
Identify 3 possible actions of report-writer based on materiality
- INCLUDE ITEM?
Ask yourself whether should the item be CONSIDERED - REFINE ITEM?
Ask yourself whether item sufficiently ACCURATE - DISCLOSE ITEM?
Ask yourself whether the item should be REPORTED
