3 Alaska Admin. Code § 21.720

Current through September 25, 2024

Section 3 AAC 21.720 - Qualifications of qualified independent certified public accountant

(a) The director will not recognize a person or firm as a qualified independent certified public accountant if the person or firm

(1) is not in good standing with the American Institute of Certified Public Accountants and in each state in which the person or firm is licensed to practice;

(2) if a Canadian or British firm, is not a chartered accountant; or

(3) has either directly or indirectly entered into an agreement of indemnity or release from liability with respect to the audit of the insurer.

(b) Except as otherwise provided in this section, the director will recognize an independent certified public accountant as qualified if the accountant conforms to the standards of the profession, as contained in the Code of Professional Conduct of the American Institute of Certified Public Accountants and 12 AAC 04.005 - 12 AAC 04.110 (Rules of Professional Conduct of the Board of Public Accountancy).

(c) An independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. If a delinquency proceeding is commenced against the insurer under AS 21.78, the mediation or arbitration provisions operate at the option of the statutory successor.

(d) The firm's lead or coordinating partner having primary responsibility for the audit may not act in that capacity for more than five consecutive years. The person will be disqualified from acting in that or a similar capacity for the same insurer or its insurance subsidiaries or affiliates for a period of five consecutive years. A domestic insurer may apply in writing to the director for relief from the requirements of this subsection on the basis of unusual circumstances. The application must be made at least 30 days before the end of the calendar year. An insurer, regardless of its state of domicile, shall file any grant of relief from the requirements of this subsection, or from substantially similar requirements in another state, with the insurer's annual statement filing in the states where the insurer is licensed or is doing business and with the National Association of Insurance Commissioners. The director may consider the following in determining if relief will be granted:

(1) the number of partners, expertise of the partners, or the number of insurance clients in the firm;

(2) the premium volume of the insurer;

(3) the number of jurisdictions in which the insurer transacts business.

(e) The director will not recognize as a qualified independent certified public accountant, or accept an annual audited financial report prepared by, in whole or in part, an accountant who has

(1) been convicted of fraud, bribery, a violation of 18 U.S.C. 1961 - 1968 (Racketeer Influenced and Corrupt Organizations Act), or any other dishonest conduct or practice under federal or state law;

(2) been found to have violated AS 21 or this chapter with respect to any previous report submitted under 3 AAC 21.705 - 3 AAC 21.799; or

(3) demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed with the division.

(f) The director may hold a hearing under AS 21.06.170-21.06.230 to determine if an independent certified public accountant is qualified and, after considering the evidence presented, may determine that the accountant is not qualified for purposes of expressing an opinion on the financial statements in the annual audited financial report. The director may order the insurer to replace the accountant with another accountant who meets the requirements of this section as a qualified independent certified public accountant.

(g) The director will not recognize as a qualified independent certified public accountant, or accept an annual audited financial report prepared by, in whole or in part, an accountant who provides to an insurer, contemporaneously with the audit, any of the following non-audit services:

(1) bookkeeping or other services related to the accounting records or financial statements of the insurer;

(2) financial information systems design and implementation;

(3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;

(4) actuarially-oriented advisory services involving the determination of amounts recorded in the financial statements; notwithstanding this paragraph,

(A) the accountant may assist an insurer in understanding the methods, assumptions, and inputs used to determine the amounts recorded in the financial statement, only if it is reasonable to conclude that the services provided will not be subject to audit procedures during an audit of the insurer's financial statements;

(B) an accountant's actuary may also issue an actuarial opinion or certification on an insurer's reserves if the

(i) accountant or the accountant's actuary has not performed any management function or made any management decision for the insurer;

(ii) the insurer has competent personnel, or engages a third-party actuary, to estimate the reserves for which management takes responsibility; and

(iii) the accountant's actuary tests the reasonableness of the reserves after the insurer's management has determined the amount of the reserves;

(5) internal audit outsourcing services;

(6) management or human resources functions;

(7) services that the accountant may not provide unless registered under 15 U.S.C. 78 o (sec. 15 of the Securities Exchange Act of 1934) as a broker-dealer;

(8) services that the accountant may not provide unless registered under 15 U.S.C. 80b-3 (sec. 203 of the Investment Advisers Act of 1940) as an investment adviser;

(9) investment banking services;

(10) legal or expert services unrelated to the audit.

(11) Any other services that the director determines are impermissible.

(h) The director will not recognize as a qualified independent certified public accountant, or accept an annual audited financial report prepared by, in whole or in part, an accountant who

(1) functions in the role of management for the insurer;

(2) audits the accountant's own work; or

(3) serves in an advocacy role for the insurer.

(i) An insurer reporting direct written and assumed premiums of less than $100,000,000 nationwide in the most recent calendar year may request an exemption from (g) of this section for its accountant by filing with the director a written statement giving the reasons why the insurer's accountant should be exempt from (g) of this section. If, after review of the insurer's statement, the director finds that compliance with (g) of this section would constitute a financial or organizational hardship upon the insurer, the director will grant an exemption.

(j) A qualified independent certified public accountant who performs the audit may engage in other non-audit services for the insurer, including tax services, that are not described in (g) of this section and that do not result in a violation of (h) of this section.

(k) Audit services and non-audit services provided to an insurer by the qualified independent certified public accountant of the insurer must be preapproved by the board of directors or audit committee. The preapproval requirement of this subsection is waived with respect to non-audit services if the insurer is a SOX compliant entity, the insurer is a direct or indirect wholly-owned subsidiary of a SOX compliant entity, or the

(1) aggregate amount of all non-audit services provided to the insurer constitutes not more than five percent of the total amount of fees paid by the insurer to its qualified independent certified public accountant during the fiscal year in which the non-audit services are provided;

(2) services were not recognized by the insurer at the time of the engagement to be non-audit services; and

(3) services are promptly brought to the attention of the board of directors or audit committee and approved before the completion of the audit by the board of directors or audit committee or by one or more members of the board of directors or audit committee given authority to grant approvals by the board of directors or audit committee.

(l) The board of directors or audit committee may delegate to one or more designated members of the board of directors or audit committee the authority to grant the preapprovals required by (k) of this section. The decisions of any member to whom this authority is delegated must be presented to the full board of directors or audit committee at each of its scheduled meetings.

(m) The director will not recognize an independent certified public accountant as qualified for a particular insurer if a member of the board, president, chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for that insurer was employed by the independent certified public accountant and participated in the audit of that insurer during the one-year period preceding the date that the most current annual audited financial report is due. The limitation in this subsection only applies to partners and senior managers involved in the audit. A domestic insurer may apply in writing to the director for relief from the limitation in this subsection on the basis of unusual circumstances. An insurer, regardless of its state of domicile, shall file any grant of relief from the limitation in this subsection, or from a substantially similar limitation in another state, with the insurer's annual statement filing in the states where the insurer is licensed or is doing business and with the National Association of Insurance Commissioners.

3 AAC 21.720

Eff. 8/31/2008, Register 187; am 1/1/2010, Register 192; am 12/26/2019, Register 232, January 2020

Authority:AS 21.06.090

AS 21.09.200