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This Audit and Accounting Guide provides the latest information on accounting and auditing issues affecting the life and health insurance industry. Updated with conforming changes as of March 1, 2008, it includes guidance in planning and performing audits under the risk assessment standards (SAS Nos. 104-111). This edition of the guide has also been conformed to reflect the Defining Professional Requirements standards (SAS No. 102 and SSAE No. 13). Furthermore, it provides additional guidance on the auditor’s responsibilities as set forth in SAS Nos. 112-114, including identifying and reporting internal control deficiencies, understanding the link between the auditor’s consideration of fraud and the auditor’s assessment of risk, dating of the management representation letter, and the auditor’s communications with those charged with governance.
The guide summarizes applicable requirements and practices, and delivers "how-to" advice for handling audit and accounting issues common to the life and health insurance industry. It includes accounting requirements for the National Association of Insurance Commissioners (NAIC) Statements of Statutory Accounting Principles and a discussion of the relevant financial statement considerations for life and health insurance industry. The guide covers the following new accounting pronouncements:
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Purpose and Applicability
This AICPA Audit and Accounting Guide has been prepared to assist life and health insurance entities in preparing financial statements in conformity with generally accepted accounting principles (GAAP) and statutory accounting practices (SAP) and to assist independent auditors in auditing and reporting on those financial statements.
This guide is intended to apply to all life and health insurance entities including stock, mutual, fraternal, and assessment entities. This guide is intended to be applied to all life and health entities that can issue life or accident and health insurance. This guide does not apply to governmental entities or to managed health care organizations.
The Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 40, Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises, clarifies that insurance entities, including mutual life insurance entities, that issue financial statements described as prepared in conformity with GAAP are required to apply all applicable authoritative accounting pronouncements in preparing those statements. The interpretation concludes that mutual life insurance entities that prepare financial statements based on regulatory accounting practices that differ from GAAP, and distribute those financial statements to regulators, should not describe those financial statements as prepared in conformity with GAAP. When FIN 40 was issued, FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises, FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments and FASB Statement No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts, exempted mutual life insurance companies, fraternal benefit societies and assessment entities (all of which are hereafter referred to as mutual life insurance entities) from their provisions. Accordingly, there was no authoritative guidance that explicitly addressed how to account for certain insurance activities of mutual life insurance entities. Recognizing the lack of authoritative guidance, the AICPA issued Statement of Position (SOP) 95-1, Accounting for Certain Insurance Activities of Mutual Life Insurance Enterprises (AICPA, Technical Practice Aids, ACC sec. 10,650), which provides accounting guidance for certain participating insurance contracts of mutual life insurance entities. Furthermore, concurrent with the issuance of SOP 95-1, FASB issued FASB Statement No. 120, Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration Participating Contracts, that removes the exemption for mutual life insurance entities from FASB Statement Nos. 60, 97, and 113, and recognizes that participating life insurance contracts that meet the conditions in paragraph 5 of SOP 95-1 should be accounted for under SOP 95-1, except that stock insurance entities are permitted to apply SOP 95-1.
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