Wis. Admin. Code Office of the Commissioner of Insurance § Ins 50.08 - Qualifications of independent certified public accountants

Current through March 28, 2022

(1) The commissioner may rule that an accountant or accounting firm is not qualified for purposes of expressing an opinion on the financial statements in the annual audited financial report required under this subchapter and prohibit insurers from retaining the accountant or an accounting firm, and require insurers to replace the accountant or accounting firm, if the commissioner finds there is cause, including, but not limited to, a finding that the accountant or accounting firm:
(a) Is not in good standing with the American institute of certified public accountants and in all states in which the accountant or accounting firm is, or is required to be, licensed to practice, or, for a Canadian or British company, that it is not a chartered accountant;
(am) Has either directly or indirectly entered into an agreement of indemnification with respect to the audit of the insurer;
(b) Has not conformed to the standards of the accounting profession as contained in the code of professional ethics of the American institute of certified public accountants and rules and regulations and code of ethics and rules of professional conduct of the accounting examining board, or a similar code;
(c) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, to , or any dishonest conduct or practices under federal or state law;
(d) Has been found to have violated the insurance laws or rules of this state; or
(e) Has demonstrated a pattern or practice of failing to detect or disclose material information in financial reports.
(2) After December 31, 1994, and prior to January 1, 2010, no accounting firm partner or other person responsible for rendering a report required of an independent certified public accountant may act in that capacity for more than 7 consecutive years. Following any period of service such a 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 2 years. Effective January 1, 2010, the lead or coordinating audit partner having primary responsibility for the audit may not act in that capacity for more than 5 consecutive years, including consecutive years immediately preceding January 1, 2010, and 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 commissioner for relief from the rotation requirement on the basis of unusual circumstances. The application should be made at least thirty days before the end of the calendar year. Factors the commissioner may consider in determining if the relief should be granted include, but are not limited to:
(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.
(3) The insurer shall file with its annual statement filing the approval for relief from sub. (2) 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.
(4)
(a) The commissioner shall not recognize as a qualified independent certified public accountant a person who, or accept an annual audited financial report prepared in whole or in part by a person who, provides to an insurer, contemporaneously with the audit, 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 reported 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:
a. Neither the accountant nor the accountant's actuary has performed any management functions or made any management decisions;
b. The insurer has competent personnel, or engages a third party actuary, to estimate the reserves for which management takes responsibility; and
c. 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 functions or human resources.
7. Broker or dealer, investment advisor, or investment banking services.
8. Legal services or expert services unrelated to the audit.
9. Any other services that the commissioner determines are impermissible. The commissioner may consider utilizing the guidance provided in the Securities and Exchange Commission Final Rule No. 33-8183, Strengthening the Commission's Requirements Regarding Auditor Independence, adopted January 28, 2003, in order to evaluate whether the provision of such services impairs the independence of the accountant.
(b) 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 the accountant's own work, and cannot serve in an advocacy role for the insurer.
(5) Insurers having direct written and assumed premiums of less than $ 100,000,000 in any calendar year may request an exemption from sub. (4) (a). The insurer shall file with the commissioner a written statement discussing the reasons why the insurer should be exempt from the provisions. If the commissioner finds upon review of the statement that compliance with sub. (4) (a) would constitute a financial or organizational hardship upon the insurer, an exemption may be granted.
(6) 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 sub. (4) (a) or that do not conflict with sub. (4) (b), only if the activity is approved in advance by the audit committee, in accordance with sub. (7), provided that the audit committee is in compliance with the Securities and Exchange Commission Final Rule 33-8183, Strengthening the Commission's Requirements Regarding Auditor Independence, adopted January 28, 2003.
(7) 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:
(a) The aggregate amount of all such non-audit services provided to the insurer constitutes not more than five percent (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;
(b) The services were not recognized by the insurer at the time of the engagement to be non-audit services; and
(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 or by one or more members of the audit committee who are members of the board of directors to whom authority to grant the approvals has been delegated by the audit committee.
(8) The audit committee may delegate to one or more designated members of the audit committee the authority to grant the preapprovals required by sub. (7). The decisions of any member to whom the authority is delegated shall be presented to the full audit committee at each of its scheduled meetings.
(9)
(a) The commissioner 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 the insurer, was employed by the independent certified public accountant and participated in the audit of the insurer during the one-year period preceding the date that the most current statutory opinion is due. This paragraph shall only apply to partners and senior managers involved in the audit. An insurer may make application to the commissioner for relief from the requirement of this paragraph on the basis of unusual circumstances.
(b) The insurer shall file with its annual statement filing the approval for relief from par. (a) 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

Wis. Admin. Code Office of the Commissioner of Insurance § Ins 50.08
Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 07-023: cr. (1) (am), Register September 2007 No. 621, eff. 10-1-07; CR 08-053: am. (2), cr. (3) to (9) Register December 2008 No. 636, eff. 1-1-09.

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