CIA.Mat

Question 1

Define materiality

Answer 1

An omission / under-statement / over-statement is MATERIAL if the actuary expects it to MATERIALLY AFFECT the user’s decision-making or reasonable expectations

Question 2

Identify the main consideration in setting a materiality level

Answer 2

SPECIFY:
- use of work, intended users
- (there is no obligation to communicate with other than intended audience)

the user perspective of the work

Question 3

Identify under which circumstances the materiality level should change

Answer 3

• When an external BENCHMARK is approached (Ex: regulatory action level)
• Otherwise, it should be consistent over time AND between valuations

Question 4

Identify 4 characteristics of an insurance company that may affect materiality

Answer 4

1. Financial strength
2. Size of entity
3. Type of business
4. Access to capital
5. net Retention
6. Stage of organization’s life cycle

Question 5

Identify a metric to test materiality for regulatory (or solvency) purposes

Answer 5

1. Statutory surplus
2. Solvency benchmark ratio

Question 6

Identify a metric to test materiality for appraisals

def: appraisals = évaluations

Answer 6

1. Net worth
2. Net income
3. EPS (earnings per share)

Question 7

Identify a metric to test materiality for general purpose financial statements

Answer 7

1. Statutory surplus
2. Net income

Question 8

Identify which application has a less rigorous materiality level: FCT or Valuation

Answer 8

FCT is less rigorous (so materiality standard is higher)
FCT:
- used for surplus in scenario-testing
Valuation:
- this impacts net income, which is more important
- need to detect smaller deviations here

Question 9

Identify 3 considerations for extent of disclosure of materiality

(Hint: SSC)

Answer 9

1. Sophistication of user
2. Significance to user
3. Complexity of concept

Question 10

Identify 3 possible actions of report-writer based on materiality

Answer 10

1. INCLUDE ITEM?
   Ask yourself whether should the item be CONSIDERED
2. REFINE ITEM?
   Ask yourself whether item sufficiently ACCURATE
3. DISCLOSE ITEM?
   Ask yourself whether the item should be REPORTED