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Get ready to expand your knowledge of the auditing and accounting issues significant to the insurance industry. Whether you're preparing your company's financial statements or preparing for an auditing engagement in the insurance industry, this AICPA Audit and Accounting Guide provides you with the latest information on significant accounting and auditing issues and related financial statement considerations.
Have you used the FASB Accounting Standards Codification™ (ASC) to maneuver through the new structure of GAAP? You'll find the helpful guidance you're accustomed to now fully conformed to the ASC, along with a clear explanation of the ASC's significance to the profession, numerical referencing system, and Internet-based research system.
Updated with conforming changes as of June 1, 2009, the guide includes relevant guidance contained in official pronouncements issued through that date, supplemented with specific "how-to" recommendations. The following new pronouncements are particularly significant to this guide and have been reflected in this edition:
You'll also want to check out the new developments related to the heavily debated fair value issue addressed in FASB Statement No. 157, Fair Value Measurements. With all these must-have features, this guide is an essential reference for firms, small practitioners, and professionals in business and industry.
For a topical listing of subject matter by chapter, click on the Table of Contents tab.
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This AICPA Audit and Accounting Guide has been prepared to assist property and liability insurance entities in preparing financial statements in conformity with generally accepted accounting principles (GAAP) and statutory accounting principles (SAPs) and to assist independent auditors in auditing and reporting on those financial statements.
This guide describes operating conditions and auditing procedures unique to the insurance industry and illustrates the form and content of financial statements and disclosures for property and liability insurance entities, various pools, syndicates, and other organizations such as public entity risk pools. Chapter 1 discusses the nature, conduct, and regulation of the insurance industry. Among the other significant areas discussed in this guide are
| • | audit considerations, including a discussion of the auditor's risk assessment process. |
| • | the premium cycle, including a discussion of rating, transactions, accounting practices, and special risk considerations. |
| • | the claims cycle, including a discussion of accounting practices and special risk considerations. |
| • | the investment cycle, including a discussion of regulation, various investment alternatives, accounting practices, and special risk considerations. |
| • | reinsurance, including a discussion of the kinds of reinsurance, accounting practices, ceded reinsurance, and assumed reinsurance. |
| • | taxes, including both federal and state. |
| • | differences between SAP and GAAP. |
In addition, appendix B discusses control activities and auditing objectives and procedures.
Discussions of accounting in this guide are generally intended to refer to authoritative literature. Discussions of SAP are mentioned if they differ from GAAP. Some significant differences between GAAP and SAP are discussed also in chapter 1.
Public entity risk pools are required to follow the accounting and financial reporting requirements of Governmental Accounting Standards Board (GASB) Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, as amended and interpreted by various GASB pronouncements.1 That statement is based primarily on Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 944, Financial Services—Insurance, and related pronouncements but includes certain accounting and financial reporting requirements that differ from FASB ASC 944. As discussed in chapter 1, many public entity risk pools are not subject to the same regulation as property and liability insurance entities.
The National Association of Insurance Commissioners (NAIC) continually monitors SAP for insurance entities. Through various committees, such as the NAIC Statutory Accounting Principles and Emerging Accounting Issues Working Group, recommendations are made to state insurance departments regarding changes in statutory accounting and reporting. The NAIC codified SAP for certain insurance enterprises resulting in an Accounting Practices and Procedures Manual. The insurance laws and regulations of the states require insurance entities domiciled in those states to comply with the guidance provided in the manual except as prescribed or permitted by state law. All states require insurers to comply with most, if not all, provisions of the manual. States have adopted the manual in whole or in part as an element of prescribed SAP in those states. If, however, the requirements of state laws, regulations, and administrative rules differ from the guidance provided in the manual or subsequent revisions, those state laws, regulations, and administrative rules will take precedence. The NAIC publication States' Prescribed Differences from NAIC Statutory Accounting Practices describes by state, the differences from the manual.
As issues are resolved, amendments to this guide may be issued by the AICPA, or pronouncements may be issued by FASB or GASB.
1 Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements— and Management's Discussion and Analysis—for State and Local Governments, provides guidance for the format and content of financial statements for all state and local governmental entities, including public entity risk pools.
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