Statements of Position

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Description

This proposed statement of position (SOP) is designed to provide guidance to auditors when auditing management's estimate of the liability for loss reserves of property and liability insurance entities. Following is a summary of some of the more significant matters discussed in the proposed SOP: 1. Methods available for estimating the liability for loss reserves and the types of data that may be used in developing such estimates, including an example of the application of a commonly used estimating method illustrating how the method may be used with two different types of data and a discussion of the difference in the resulting projections; 2. Changes in the environment and other variables, both internal and external to the entity being audited, that the auditor should consider in evaluating the reasonableness of the loss reserve estimate; 3. The need for the use of a loss reserve specialist in management's determination of the loss reserve estimate and how the absence of a loss reserve specialist in this process may affect the auditor's consideration of an entity's internal control structure; 4. The qualifications of a loss reserve specialist; 5. The requirement that an outside loss reserve specialist, that is, a specialist who is not an employee or officer of the entity, be used by the auditor in the evaluation of the reasonableness of management's loss reserve estimate (SAS No. 11, Using the Work of a Specialist, does not preclude the auditor from using the work of a specialist who is related to the client. However, because of the significance of loss reserves to the financial statements of insurance companies and the complexity and subjectivity involved in making loss reserve estimates, the proposed SOP requires that an outside loss reserve specialist be used by the auditor in the evaluation of the estimate.); 6. The variability inherent in loss reserve estimates, the need for the auditor to evaluate this variability, how variability is evaluated, and reporting implications when variability is considered to be significant.

Publication Date

1991

Relational Format

Book

Keywords

Insurance -- United States -- Reserves -- Auditing; Insurance, Property -- United States -- Auditing; Insurance, Liability -- United States -- Auditing

Disciplines

Accounting | Taxation

Comments

Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants.

Proposed statement of position : auditing insurance entities' loss reserves : proposed supplement to AICPA Audit and accounting guide, Audits of property and liability insurance companies;Auditing insurance entities' loss reserves : proposed supplement to AICPA Audit and accounting guide, Audits of property and liability insurance companies; Exposure draft (American Institute of Certified Public Accountants), 1991, Sept. 16

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