Life and Health Insurance Entities — AICPA Audit and Accounting Guide

• Chapter 1: Overview of the Life and Health Insurance Industry
  • Introduction
  • Legal Forms of Organization
  • Size and Composition of the Industry
    • Stock Insurance Entities
    • Mutual Insurance Entities
    • Fraternal Benefit Societies
    • Assessment Entities
  • Operations and Distribution Systems
    • Operations
    • Distribution Systems
  • Major Lines of Business
    • Life Insurance Contracts
    • Accident and Health Insurance Contracts
    • Annuity Contracts
    • Investment Contracts
    • Fee-for-Service Contracts
  • Reinsurance
  • Regulation
    • National Association of Insurance Commissioners
    • Federal Regulations
  • Rating Agencies
  • Taxation
    • Federal Taxation
    • State Taxation
  • State Guaranty Funds
  • Industry Associations
  • International Considerations
  • Terrorism
• Chapter 2: Characteristics of Life and Health Insurance Products
  • Introduction
  • Classification of Insurance Contracts
    • Broad Lines of Business
    • Participating or Nonparticipating Classification
    • Group or Individual Classification
    • Accounting Classification
  • Types of Contracts
    • Life Insurance Contracts
    • Accident and Health Insurance Contracts
    • Annuity Contracts
    • Investment Contracts
    • Fee-for-Service Contracts
• Chapter 3: Sources of Accounting Principles and Reporting Requirements
  • Introduction
  • Statutory Accounting Practices
    • Permitted Statutory Accounting Practices
    • Statutory Reporting
    • Disclosure Issues
  • GAAP Financial Statement Disclosures
    • Certain Financial Statement Disclosures
    • Risks and Uncertainties
    • Mutual Life Insurance Entities
  • FASB ASC 820 and 825 Fair Value Measurements and Disclosures and Financial Instruments
    • Definition of Fair Value
    • Valuation Techniques
    • Present Value Techniques
    • The Fair Value Hierarchy
    • Disclosures
    • Fair Value Option
  • Securities and Exchange Commission Reporting Requirements
  • Tax Basis Accounting Requirements
  • Comparison of Generally Accepted Accounting Principles and Statutory Accounting Practices
• Chapter 4: Audit Risk Considerations
  • Introduction
  • Risk Indicators in the Life and Health Insurance Industry
    • Asset Risk (C-1)
    • Insurance Risk (C-2)
    • Interest Rate Risk (C-3)
    • Business Risk (C-4)
  • Statutory Risk Based Capital
• Chapter 5: General Auditing Considerations
  • Introduction
  • Scope of the Audit Engagement
    • General Considerations
    • PCAOB Integrated Audit of Financial Statements and Internal Control Over Financial Reporting
    • PCAOB Audit of Financial Statements Only
  • Planning and Other Auditing Considerations
    • Audit Planning
    • Audit Risk
    • Planning Materiality
    • Use of Service Organizations
  • Use of Assertions in Obtaining Audit Evidence
  • Understanding the Entity, Its Environment, and Its Internal Control
    • Risk Assessment Procedures
    • Discussion Among the Audit Team
    • Understanding of the Entity and Its Environment
    • Understanding of Internal Control
  • Assessment of Risks of Material Misstatement and the Design of Further Audit Procedures
    • Assessing the Risks of Material Misstatement
    • Designing and Performing Further Audit Procedures
  • Evaluating Misstatements
  • Additional Audit Considerations
    • Analytical Procedures
    • Accounting Estimates
    • Use of Specialists
    • Use of Internal Auditors
    • Audit Reports
    • Audit Documentation—Audits Conducted in Accordance With GAAS
    • Audit Documentation—Audits Conducted in Accordance With PCAOB Standards
    • Auditing Fair Value Measurements and Disclosures
    • Letters for State Insurance Regulators to Comply With the NAIC Model Audit Rule
    • SEC Requirements for Management's Report on Internal Control Over Financial Reporting
    • Other Communication Between Auditors and Regulators
    • Communications by Successor Auditors
    • Communication of Matters Related to Internal Control
    • Communication of Other Matters With Those Charged With Governance, Including Audit Committees
    • Consideration of Fraud in a Financial Statement Audit
    • Illegal Acts
    • Going-Concern Considerations
    • Management Representations
• Chapter 6: Auditing Inforce Files
  • Introduction
    • Control Objectives
    • Auditing Procedures
    • Confirmation of Insurance Contracts in Force
• Chapter 7: Insurance Revenues
  • Introduction
  • Regulation of Premium Rates
  • Taxation of Premiums
  • Accounting Practices
  • Statutory Accounting Practices
  • Generally Accepted Accounting Principles
  • Auditing
  • Inherent Risk Factors
  • Obtaining an Understanding of Internal Control for Premium Transactions
  • Control Environment
  • Control Activities
  • Information and Communication
  • Audit Consideration Chart
• Chapter 8: Liabilities for Future Policy Benefits (Statutory Policy Reserves) and Other Contract Liabilities
  • Introduction
  • Regulation
    • Statement of Actuarial Opinion
  • Calculation Methods
  • Reserve Definitions
    • Retrospective and Prospective Methods
  • Accounting Practices
  • Statutory Accounting Practices
    • Calculation of Reserve Liabilities by Contract Type
    • Participating Policies
  • Generally Accepted Accounting Principles
    • Significant Actuarial Assumptions
    • Calculation of Liabilities for Future Policy Benefits by Contract Type
    • Participating Dividends
  • Auditing
    • Inherent Risk Factors
  • Obtaining an Understanding of Internal Control for Auditing Liabilities for Future Policy Benefits and Other Contract Liabilities
    • Control Environment
    • Control Activities
    • Information and Communication
  • Special Considerations
    • Auditing Statutory Reserve Adequacy
    • Auditing GAAP Benefit Liabilities—Reviewing Assumptions Used
  • Audit Consideration Chart
• Chapter 9: Benefit and Claim Payments
  • Introduction
    • Kinds of Benefit and Claim Payments
  • Regulation
  • Accounting Practices
    • Statutory Accounting Practices—Benefit and Claim Payments
    • Generally Accepted Accounting Principles—Benefit and Claim Payments
  • Auditing
    • Inherent Risk Factors
  • Obtaining an Understanding of Internal Control for Contract Benefit and Claim Transactions
    • Control Environment
    • Control Activities
    • Information and Communication
  • Audit Consideration Chart
• Chapter 10: Commissions, General Expenses, and Deferred Acquisition Costs
  • Introduction
  • Regulation
  • Accounting Practices
    • Statutory Accounting Practices
    • Generally Accepted Accounting Principles
    • Accounting for DAC in Connection With Contract Modifications or Exchanges
    • Sales Inducements to Contract Holders
    • Amortization of DAC
    • Calculation Methodologies
    • Recoverability Testing and Loss Recognition
    • Special Considerations
  • Auditing
    • Inherent Risk Factors
  • Obtaining an Understanding of Internal Control for Commissions, General Expenses, and Deferred Acquisition Costs
    • Control Environment
    • Control Activities
    • Information and Communication
    • Commissions and Allowances
    • General Expenses
    • Deferred Acquisition Costs
  • Audit Consideration Chart
• Chapter 11: Investments
  • Introduction
  • Regulation
  • Accounting Practices
  • Security Investments
    • Debt Securities
    • Securities Lending Transactions
    • Repurchase Agreements and Wash Sales
    • Equity Securities
    • Futures, Options, and Similar Financial Instruments
    • Interest Maintenance Reserve and Asset Valuation Reserve
    • Realized and Unrealized Gains and Losses on Debt and Equity Securities
  • Investments Other Than Securities
    • Mortgage Loans
    • Troubled Debt Restructurings
    • Real Estate Investments
    • Joint Ventures and Partnerships
    • Policy Loans
  • Investment Income Due and Accrued
  • Auditing
    • Debt and Equity Securities
    • Inherent Risk
  • Obtaining an Understanding of Internal Control for Investment Transactions
    • Control Environment
    • Control Activities
    • Information and Communication
  • Audit Consideration Chart
• Chapter 12: Reinsurance
  • Introduction
  • Reinsurance Transactions
  • Types of Reinsurance Entities
  • Bases of Reinsurance Agreements
    • General Reinsurance Agreements
  • Regulation
  • Accounting Practices
    • Statutory Accounting Practices
    • Generally Accepted Accounting Principles
    • Reporting Reinsurance Assets and Liabilities
    • Reporting Reinsurance Revenues and Costs
  • Auditing
    • Inherent Risk Factors
  • Obtaining an Understanding of Internal Control for Reinsurance Transactions
    • Control Environment
    • Control Activities
    • Information and Communications
    • Reinsurance Ceded
    • Planning Substantive Tests of Reinsurance Ceded
    • Reinsurance Assumed
    • Planning Substantive Tests of Reinsurance Assumed
  • Audit Consideration Chart: Reinsurance Transactions in General
• Chapter 13: Taxation of Life Insurance Entities
  • Introduction
    • Federal Income Taxes
  • Election to File a Consolidated Return
    • Five Year Affiliation Requirement
  • Elements of Life Insurance Company Taxable Income
    • Life Insurance Gross Income
    • Life Insurance Company Deductions Allowed
    • Adjustments Unique to Life Insurance Companies
    • Computation of Federal Income Tax Liability
    • State Taxes
  • Accounting Practices
    • Statutory Accounting Practices
  • Auditing
    • Inherent Risk Factors
  • Obtaining an Understanding of Internal Control for Auditing Income Tax Transactions
    • Control Environment
    • Control Activities
    • Information and Communication
  • Audit Consideration Chart
• Chapter 14: Other Assets and Liabilities, Lending and Financing, Surplus Notes, Separate Accounts, Insurance Related Assessments and Equity—Contract Holders' Surplus
  • Introduction
  • Other Assets
    • Nonadmitted Assets, Statutory Financial Statements Only
  • Other Liabilities
  • Lending and Financing
  • Surplus Notes
  • Separate Accounts
    • Variable Annuity Contracts and Variable Life Insurance Contracts
    • Separate Account Structures
    • Group Annuity Contracts
    • Statutory Accounting Practices—Separate Accounts
    • Generally Accepted Accounting Principles— Separate Accounts
    • SEC Registration—Separate Accounts
    • Additional Literature—Separate Accounts
  • Insurance Related Assessments
    • Guaranty Fund Assessments
    • Other Insurance Related Assessments
    • Reporting Liabilities
    • Application of Guidance
    • Present Value
    • Reporting Assets for Premium Tax Offsets and Policy Surcharges
    • Pensions
  • Equity Contract Holders' Surplus
    • Statutory Accounting Practices—Capital and Surplus
  • Auditing
    • Auditing Procedures
• Chapter 15: Reports on Audited Financial Statements
  • Reports on Financial Statements
  • Unqualified Opinions on GAAP Financial Statements
  • Mutual Life Insurance Entities
  • Unqualified Opinions With Explanatory Language
    • Emphasis of a Matter
    • Uncertainties
    • Going Concern
    • Evaluating Consistency of Financial Statements
  • Qualified Opinion
  • Disclaimer of Opinion
  • Adverse Opinion
  • Additional Guidance When Performing Integrated Audits of Financial Statements and Internal Control Over Financial Reporting
  • Reporting on Whether a Previously Reported Material Weakness Continues to Exist
  • Auditors' Reports on Statutory Financial Statements of Insurance Entities
    • NAIC-Codified Statutory Accounting
  • General Use Reports
  • Limited Use Reports
  • General Use and Limited Use Reports
    • Reporting on Management's Assessment Pursuant to the Life Insurance Ethical Market Conduct Program of the Insurance Marketplace Standards Association
    • Overview of the IMSA Life Insurance Ethical Market Conduct Program
    • IMSA Assessment Questionnaire
    • Insurance Marketplace Standards Association Membership and Certification Process
    • IMSA Independent Assessor Application Process and Required Training
    • IMSA Assessment Handbook
    • Planning the IMSA Engagement
    • Establishing an Understanding With the Client
    • Assessments of Attestation Risk
    • Obtaining Sufficient Evidence
    • Reporting Considerations for IMSA Engagements
    • Elements of the Report
    • Assessment of Attestation Risk for IMSA Engagements
    • Management Characteristics and Influence Over the Control Environment
    • Industry Conditions
    • Distribution, Sales Volume, and Products
    • Other Considerations
• Appendix A: List of Industry Trade and Professional Associations, Directories, and Journals
• Appendix B: Illustrative Financial Statements
• Appendix C: Life Insurance Entity Specific Disclosures
• Appendix D: Major Existing Differences Between AICPA Standards and PCAOB Standards
• Appendix E: Schedule of Changes Made to the Text From the Previous Edition
• Glossary

012639