Spring 2016 21

meowyadoinmeowyadoin
in COPLFR.SAO

Can you elaborate 'It is the appointed actuary’s responsibility to provide the list of significant data items to the auditor and should therefore be considered within the scope of the auditor’s audit'? I don't quite understand. For part b, why is net paid L&LAE not net UNPAID L&LAE data reconcile to Schedule P, Part 1?

Comments

  • grahamgraham

    Question 1: (part a)

    Since the auditor is not an actuary, the auditor wouldn't necessarily know which items are actuarially significant and need to be tested. The actuary therefore needs to specifically tell the auditor which items to test. These listed items then fall within the scope of the audit.

    Question 2: (part b)

    Schedule P reconciliation pertains to data the actuary used in their analysis. Part (b) of this problem only stated that paid losses were used so that's what has to be reconciled to Schedule P. (It's true that Schedule P contains unpaid loss data and the actuary may indeed have used unpaid data but this was not mentioned in the question so you don't have to say anything about it.)

    From section 3.7 of COPLFR (Schedule P Reconciliation):

  • anonactanonact

    I'm confused on the wording of this section of COPLFR. If the AA is providing what data is significant, why would the auditor then need to decide what data elements to include? Shouldn't they include all that the actuary provided, as they're all significant?

    The data testing requirement has been in effect for several years and is specified in the Annual Audited Financial Reports section of the NAIC Annual Statement Instructions. This is included in Appendix I.4 of this practice note. According to this requirement, “through inquiry of the Appointed Actuary, the auditor should obtain an understanding of the data identified by the Appointed Actuary as significant.”41 The auditor’s responsibility is to determine which data elements are to be included in the testing procedures within the scope of the financial statement audit

  • grahamgraham

    My interpretation is that the auditor has independent authority over what to include as part of the data testing requirement. The auditor however does need to work with the AA to come to a final decision as to what to include because the AA is obviously more familiar with the analysis than the auditor would be.

    I believe you are correct that the auditor should include everything the AA says is significant, but the auditor may also choose to include other items as well.

  • Victor_WVictor_W

    Hello, I'm confused in the question's part(b) wording: "fully describe the reconciliation of this data as provided in discussion and guidance around the NAIC Annual Statement Instructions" At first glance I don't see why the question is asking for the answer that comes from 3.7 Reconciliation to Schedule P?
    thanks

  • grahamgraham

    The question's wording, "fully describe the reconciliation of this data as provided in discussion and guidance around the NAIC Annual Statement Instructions," implies that there is an expectation for the candidate to explain the process as it is guided by the relevant section of the NAIC instructions. This would naturally lead to Section 3.7 concerning Schedule P Reconciliation, as it is a key component of the NAIC instructions that deals directly with the handling of loss data.

    So the exam question is drawing on the assumption that candidates are aware that reconciliation to Schedule P is a fundamental part of the NAIC Annual Statement Instructions and is testing their knowledge on how to perform and describe this task.

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