31 Pa. Code § 147.6 - Recognition, qualification and responsibilities of an independent certified public accountant

Current through Register Vol. 51, No. 52, December 25, 2021

(a) An annual audited financial report must be prepared by a qualified independent certified public accountant recognized by the Commissioner.
(b) Except for insurers organized in Canada or the United Kingdom of Great Britain and Northern Ireland, the Commissioner will not recognize a person or firm as a qualified independent certified public accountant nor accept an annual audited financial report prepared in whole or in part by the person or firm under any of the following conditions:
(1) The person is not licensed, or the firm is not registered, to practice and is not in good standing under the laws of the Commonwealth or of a state with licensing requirements similar to the Commonwealth.
(2) The person or firm is not in good standing with the American Institute of Certified Public Accountants, Inc. and, if applicable, the Public Company Accounting Oversight Board.
(3) The person or firm is not in good standing in all states in which the person is licensed, or the firm is registered, to practice.
(4) The person or firm has entered into an agreement of indemnity, or other release from liability, that would shift, transfer, or limit in any manner the potential liability of the person or firm for failure, whether by omission or commission, to adhere to applicable auditing or professional standards, whether or not the failure would result in whole or in part from misrepresentations made by the insurer or its representatives.
(5) The person or firm employed a partner or senior manager who was involved in an audit of the insurer during the 1 year period preceding the date that the most current annual audited financial report is due and who currently serves as a member of the board of directors, president, chief executive officer, controller, chief financial officer, chief accounting officer, or in any equivalent position for the insurer.
(6) The person or firm provides to the insurer contemporaneously with the audit any of the following non-audit services:
(i) Bookkeeping or other services relating to the insurer's accounting records or financial statements.
(ii) Financial information systems design and implementation.
(iii) Appraisal or valuation services, fairness opinions or contribution-in-kind reports.
(iv) Actuarial advisory services.
(v) Internal audit outsourcing services.
(vi) Management functions or human resource services.
(vii) Broker or dealer, investment adviser or investment banking services.
(viii) Legal or expert services unrelated to the audit.
(c) For an insurer organized in Canada or the United Kingdom of Great Britain and Northern Ireland, the Commissioner will not recognize a person or firm as a qualified independent public accountant nor accept an annual audited financial report prepared in whole or in part by the person or firm under any of the following conditions:
(1) The person or firm is not a chartered accountant.
(2) The person or firm has entered into an agreement of indemnity, or other release from liability, that would shift, transfer, or limit in any manner the potential liability of the person or firm for failure, whether by omission or commission, to adhere to applicable auditing or professional standards, whether or not the failure would result in whole or in part from misrepresentations made by the insurer or its representatives.
(3) The person or firm meets the criteria of subsection (b)(5) or provides to the insurer contemporaneously with the audit any of the nonaudit services prohibited under subsection (b)(6) and the insurer has not been granted an exemption under subsection (h).
(d) The qualified independent certified public accountant's lead partner or other person primarily responsible for an insurer's audit may not act in that capacity for more than 5 consecutive years. Following a 5-year period of service, the person will be disqualified from acting in that or a similar capacity for the same insurer or its insurance subsidiaries or affiliates for 5 consecutive years.
(e) A qualified independent certified public accountant who performs an audit for an insurer may only engage in nonaudit services, including tax services, for the insurer if all of the following requirements are met:
(1) The services are not prohibited under subsection (b)(6).
(2) The independent certified public accountant does not function in the role of management, audit his own work or serve in an advocacy role for the insurer.
(3) The services have been approved in advance by the insurer's audit committee under subsection (f).
(f) Auditing and nonaudit services provided to an insurer by the insurer's qualified independent certified public accountant shall be preapproved in writing by the insurer's audit committee, except that preapproval of nonaudit services is not required if any of the following criteria are met:
(1) The insurer is a Sarbanes-Oxley compliant entity.
(2) The insurer is a direct or indirect wholly-owned subsidiary of a Sarbanes-Oxley compliant entity.
(3) During the fiscal year in which nonaudited services are provided, the aggregate amount of the nonaudit services constitute 5% or less of the total amount of fees paid or owed by the insurer to the qualified independent certified public accountant.
(g) An insurer's audit committee may delegate the authority to grant the preapprovals required under subsection (f) to one or more designated members of the audit committee. A decision of any member to whom this authority is delegated shall be presented to the full audit committee at the next scheduled meeting.
(h) The following provisions apply to applications for relief and exemptions.
(1) An insurer may apply to the Commissioner for relief from subsection (b)(5) or subsection (d), or both, on the basis of unusual circumstances. In determining whether relief should be granted, the Commissioner may consider the following factors:
(i) The number of partners, the expertise of the partners or the number of insurance or continuing care provider clients in the currently registered firm.
(ii) The premium volume of the insurer or revenue volume of the continuing care provider.
(iii) The number of jurisdictions in which the insurer transacts business.
(2) If relief is granted, the insurer shall include a copy of the granted relief with its audited financial report filed under § 147.3(a) (relating to filing and extensions for filing required reports and communications).
(3) An insurer with direct written and assumed premium less than $100,000,000 in a calendar year may apply for exemption from subsection (b)(6) on the basis of financial or organizational hardship under § 147.13(g) (relating to effective date and exemption).
(4) The requirements of subsection (b)(5) and (6) and subsections (e), (f) and (g) do not apply to continuing care providers.
(i) The Commissioner will not recognize as a qualified independent certified public accountant, nor accept an annual audited financial report prepared in whole or in part by a natural person who meets one of the following conditions:
(1) The person has been convicted of fraud, bribery, a violation of 18 U.S.C.A. Chapter 96 (relating to the Racketeer Influenced and Corrupt Organizations) or any dishonest conduct or practice under Federal or state law.
(2) The person has been found to have violated the insurance laws of the Commonwealth with respect to previous reports submitted under this chapter.
(3) The person has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under this chapter.
(j) The Commissioner may hold a hearing in accordance with 2 Pa.C.S. § § 501-508 and 701-704 (relating to Administrative Agency Law) and Chapters 56 and 57 (relating to special rules of administrative practice and procedure; and publication of citations and notice of hearings) to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not independent or qualified, or both, for purposes of expressing an opinion on the financial statements in the audited financial report made under this chapter and may require the insurer to replace the certified public accountant.
(k) 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 receivership proceeding commenced against the insurer under Article V of The Insurance Department Act (40 P. S. § § 221.1-221.63), the mediation or arbitration agreement may be disavowed by the statutory receiver.
(l) If the Commissioner has reason to believe that an audit performed contains a material departure from generally accepted auditing standards, the Commissioner may refer the matter to the State Board of Accountancy and the American Institute of Certified Public Accountants, Inc., for review and determination. Upon the finding by the State Board of Accountancy or the American Institute of Certified Public Accountants, Inc., that a certified public accountant violated applicable standards relating to competence, the performance of audits, accounting principles or other professional conduct, the Commissioner will not accept the audited financial report for that audit and will no longer accept audited financial statements certified by that certified public accountant.
(m) Within 60 days of receipt of notice from the Commissioner of a finding under subsection (l) that an audit contains a material departure from generally accepted auditing standards, the insurer for which the audit was performed shall register with the Commissioner the name and address of a qualified independent certified public accountant retained by the insurer to perform an audit in compliance with this chapter for the year for which the finding was made. The audited financial report for the year for which the finding was made shall be filed within a time period to be determined by the Commissioner.

Notes

31 Pa. Code § 147.6
The provisions of this § 147.6 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730.

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