Ill. Admin. Code tit. 50, § 925.70 - Qualifications of Independent Certified Public Accountant

Current through Register Vol. 46, No. 15, April 8, 2022

a) The Director shall not recognize any person or firm as a qualified independent certified public accountant if the person or firm:
1) Is not in good standing with the AICPA and in all states in which the accountant is licensed to practice or, for a Canadian or British company, that is not a chartered accountant; or
2) Has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the insurer; or
3) Has repeatedly failed to timely comply with the written requests of the Director's examiners for copies of the workpapers as required pursuant to Sections 925.120 and 925.130 of this Part.
b) Except as otherwise provided in this Section, the Director shall recognize an independent certified public accountant as qualified as long as the accountant conforms to the standards of the profession, as contained in the Code of Professional Ethics of the AICPA or similar code.
c) A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under Article XIII1/2 of the Code, the mediation or arbitration provisions shall operate at the option of the statutory successor.
d) The requirements for use of an independent certified accountant shall become effective for years beginning after December 31, 2009.
1) The lead (or coordinating) audit partner (having primary responsibility for the audit) may not act in that capacity for more than 5 consecutive years. The person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of 5 consecutive years. An insurer may make application to the Director for relief from this rotation requirement on the basis of unusual circumstances. This application should be made at least 30 days before the end of the calendar year. The Director may consider the following factors in determining if the relief should be granted:
A) Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;
B) Premium volume of the insurer; or
C) Number of jurisdictions in which the insurer transacts business.
2) The insurer shall file, with its annual statement filing, the approval for relief from subsection (d)(1) of this Section with the states that it is licensed in or doing business in and with the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.
e) The Director shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report prepared in whole or in part by any natural person who:
1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act ( 18 USC 1961 - 1968 ), or any dishonest conduct or practices under federal or state law;
2) Has been found to have violated the insurance laws of this State with respect to any previous reports submitted under this Part; or
3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this Part.
f) The Director, as provided in Section 401 of the Code, may, as provided in Administrative Hearing Procedures (50 Ill. Adm. Code 2402), hold a hearing to determine whether an independent certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing an opinion on the financial statements in the annual audited financial report made pursuant to this Part and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this Part.
g) Qualified Independent Certified Public Accountant
1) The Director shall not recognize as a qualified independent certified public accountant, nor accept an annual audited financial report prepared in whole or in part by an accountant, who provides to an insurer, contemporaneously with the audit, the following non-audit services:
A) Bookkeeping or other services related to the accounting records or financial statements of the insurer;
B) Financial information systems design and implementation;
C) Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
D) Actuarially-oriented advisory services involving the determination of amounts recorded in the financial statements. The accountant may assist an insurer in understanding the methods, assumptions and inputs used in the determination of 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. An accountant's actuary may also issue an actuarial opinion or certification (opinion) on an insurer's reserves if the following conditions have been met:
i) Neither the accountant nor the accountant's actuary has performed any management functions or made any management decisions;
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;
E) Internal audit outsourcing services;
F) Management functions or human resources;
G) Broker or dealer, investment adviser, or investment banking services;
H) Legal services or expert services unrelated to the audit; or
I) Any other services that the Director determines, are impermissible. In determining whether other services are impermissible, the Director shall consider utilizing the guidance provided in 17 CFR 210.2-01 in order to evaluate whether the provision of the services impairs the independence of the accountant.
2) In general, the principles of independence with respect to services provided by the qualified independent certified public accountant are largely predicated on three basic principles, violations of which would impair the accountant's independence. The principles are that the accountant cannot function in the role of management, cannot audit his or her own work, and cannot serve in an advocacy role for the insurer.
h) Insurers having direct written and assumed premiums of less than $100,000,000 in any calendar year may request an exemption from subsection (g). The insurer shall file with the Director a written statement discussing the reasons why the insurer should be exempt from these provisions. If the Director finds, upon review of this statement, that compliance with this Part would constitute a financial or organizational hardship upon the insurer, an exemption may be granted.
i) A qualified independent certified public accountant who performs the audit may engage in other non-audit services, including tax services, that are not described in subsection (g) or that do not conflict with subsection (g)(2), only if the activity is approved in advance by the audit committee, in accordance with subsection (j).
j) All auditing services and non-audit services provided to an insurer by the qualified independent certified public accountant of the insurer shall be preapproved by the audit committee. The preapproval requirement is waived with respect to non-audit services if the insurer is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity or:
1) The aggregate amount of all such non-audit services provided to the insurer constitutes not more than 5% 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, or
2) The services were not recognized by the insurer at the time of the engagement to be non-audit services; and
3) The services are promptly brought to the attention of the audit committee and approved prior to the completion of the audit by the audit committee or by one or more members of the audit committee who are the members of the board of directors to whom authority to grant this approval has been delegated by the audit committee.
k) The audit committee may delegate to one or more designated members of the audit committee the authority to grant the preapprovals required by subsection (j). The decisions of any member to whom this authority is delegated shall be presented to the full audit committee at each of its scheduled meetings.
l) The Director shall 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 statutory opinion is due. This subsection shall only apply to partners and senior managers involved in the audit. An insurer may make application to the Director for relief from the requirement of this subsection on the basis of unusual circumstances.
m) The insurer shall file, with its annual statement filing, the approval for relief from subsection (l) with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

Notes

Ill. Admin. Code tit. 50, § 925.70

Amended at 33 Ill. Reg. 6974, effective May 11, 2009

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