Or. Admin. R. 410-141-5025 - FINANCIAL SOLVENCY REGULATION: Qualifications of Independent Certified Public Accountant

Current through Register Vol. 60, No. 12, December 1, 2021

(1) The Authority shall not recognize any person as a qualified independent certified public accountant for the purposes of OAR 410-141-5020 if the person:

(a) Is not in good standing with the AICPA and in all states in which the person is licensed to practice as a certified public accountant; or

(b) Has either directly or indirectly entered into an agreement of indemnity or a release from liability (collectively referred to as indemnification) with respect to the audit of the CCO.

(2) Except as otherwise provided in this section, the Authority shall recognize an independent certified public accountant as qualified as long as the certified public accountant conforms to the standards of the certified public accountant profession, as contained in the Code of Professional Ethics of the AICPA and the rules and the Code of Professional Conduct of the Oregon State Board of Accountancy, or a similar code of conduct of the state board regulating the practice of accountancy in the state in which the accountant is licensed to practice.

(3) A qualified independent certified public accountant may enter into an agreement with a CCO to have disputes relating to an audit resolved by mediation or arbitration. In the event of a delinquency proceeding commenced against the CCO, however, the mediation or arbitration provisions shall operate at the option of the statutory successor.

(4) The lead or coordinating audit partner having primary responsibility for the audit may not act in that capacity for more than five consecutive years, beginning with the year 2020. The partner or other person is disqualified from acting in that or a similar capacity for the same CCO or its subsidiaries or affiliates for a period of five consecutive years. A CCO may apply to the Authority for relief from the rotation requirement of this section on the basis of unusual circumstances. A CCO must apply for relief at least 30 days before the end of the calendar year. The Authority may consider the following factors in determining whether the relief should be granted:

(a) The number of partners, the expertise of the partners or the number of CCO and insurance clients in the currently registered firm.

(b) The capitated revenue volume of the CCO.

(c) The number of jurisdictions in which the CCO transacts business.

(5) The Authority shall not recognize an individual as an independent certified public accountant, or accept an annual audited financial report required by OAR 410-141-5020 that is prepared in whole or part by an individual, if the individual:

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

(b) Has been found to have violated the laws of this state with respect to any previous reports submitted under OAR 410-141-5020 or to DCBS; or

(c) Has demonstrated a pattern or practice of failing to detect or disclose material information in any report filed under OAR 410-141-5020 or to DCBS.

(6) The Authority may 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 the accountant's opinion on the financial statements in the annual audited financial report made pursuant to OAR 410-141-5020 and require the CCO to replace the accountant with another accountant who is qualified with respect to the CCO as provided in this section.

(7) The Authority may not recognize an accountant as a qualified independent certified public accountant or accept an annual audited financial report prepared in whole or in part by the accountant if the accountant provides to a CCO, contemporaneously with the audit, any of the following non-audit services:

(a) Bookkeeping or other services related to the accounting records or financial statements of the CCO.

(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 a CCO 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 CCO's financial statements. An accountant's actuary may also issue an actuarial opinion or certification on a CCO's reserves if all of the following conditions have been met:

(A) Neither the accountant nor the accountant's actuary has performed any management functions or made any management decisions.

(B) The CCO has competent personnel (or engages a third-party actuary) to estimate the reserves for which management takes responsibility.

(C) The accountant's actuary tests the reasonableness of the reserves after the CCO'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.

(8) In general, the principles of independence with respect to services provided by a 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 the accountant's own work, and cannot serve in an advocacy role for the CCO.

(9) 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 (7) and that do not conflict with subsection (8), only if the activity is approved in advance by the CCO's audit committee in accordance with subsection (10).

(10) All auditing services and non-audit services provided to a CCO by a qualified independent certified public accountant of the CCO shall be preapproved by a duly constituted audit committee of the CCO's Board. The preapproval requirement is waived with respect to non-audit services if all of the following conditions are met:

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

(b) The services were not recognized by the CCO at the time of the engagement to be non-audit services.

(c) 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.

(11) The Authority may not recognize an independent certified public accountant as qualified for a particular CCO 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 CCO was employed by the independent certified public accountant and participated in the audit of that CCO during the one-year period preceding the date that the most current statutory opinion is due. This section applies only to partners and senior managers involved in the audit. A CCO may apply to the Authority for relief from the requirement of this subsection on the basis of unusual circumstances.

Notes

Or. Admin. R. 410-141-5025

DMAP 58-2019, adopt filed 12/18/2019, effective 1/1/2020

Statutory/Other Authority: ORS 413.042, 414.615, 414.625, 414.635 & 414.651

Statutes/Other Implemented: ORS 414.610-414.685