The amendment incorporates by reference new editions of standards developed by the American Institute of CPAs that apply to annual audited financial statements.

 

DEPARTMENT OF FINANCIAL SERVICES

OIR – Insurance Regulation

RULE NO.:RULE TITLE:

69O-137.002Annual Audited Financial Reports

PURPOSE AND EFFECT: The amendment incorporates by reference new editions of standards developed by the American Institute of CPAs that apply to annual audited financial statements.

SUMMARY: The American Institute of CPAs has updated the professional standards guidance that applies to annual audited financial statements. The amendment adopts these updated standards.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION:

The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the Agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: Agency personnel familiar with the subject matter of the rule amendment have performed an economic analysis of the rule amendment that shows that the rule amendment is unlikely to have an adverse impact on the State economy in excess of the criteria established in Section 120.541(2)(a), Florida Statutes.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 624.308(1); 624.4085; 624.424(8)(e), FS.

LAW IMPLEMENTED: 624.307(1); 624.324; 624.424(8), FS.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW (IF NOT REQUESTED, THIS HEARING WILL NOT BE HELD):

DATE AND TIME: Wednesday, August 1, 2018, 9:30 a.m.

PLACE: 116 Larson Building, 200 East Gaines Street, Tallahassee, Florida. To join by telephone, call [phone] and enter conference ID# 495238.

Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 5 days before the workshop/meeting by contacting: Christopher Struk, Office of Insurance Regulation, E-mail: [e-mail].. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Christopher Struk, Office of Insurance Regulation, E-mail: [e-mail].

 

THE FULL TEXT OF THE PROPOSED RULE IS:

 

69O-137.002 Annual Audited Financial Reports.

(1) through (8) No change.

(9) Scope of Audit and Report of Independent Certified Public Accountant. Financial statements furnished pursuant to subsection (5), above, shall be examined by the independent certified public accountant. The audit of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. In accordance with AU-C 610   AU Section 319 of the Professional Standards of the AICPA, Using the Work of Internal Auditors, Consideration of Internal Control in a Financial Statement Audit the independent certified public accountant should obtain an understanding of internal control sufficient to plan the audit. To the extent required by AU-C 610 AU 319, for those insurers required to file a Management’s Report of Internal Control over Financial Reporting pursuant to subsection (16), the independent certified public accountant should consider (as that term is defined in AU Section 120of the Professional Standards of the AICPA, AU-C 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards) Defining Professional Requirements in Statements on Auditing Standards the most recently available report in planning and performing the audit of the statutory financial statements. Consideration should also be given to the other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners (incorporated by reference in Rule 69O-138.001, F.A.C.) as the independent Certified Public Accountant deems necessary.

(10) Notification of Adverse Financial Condition.

(a) through (b) No change.

(c) If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this rule, becomes aware of facts which might have affected his report, the Office notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 AU-C 560 of the Professional Standards of the AICPA, Subsequent Events and Subsequently Discovered Facts.

(11) Communication of Internal Control Related Matters Noted in an Audit.

(a) In addition to the annual Audited Financial Report, each insurer shall furnish the Office with a written communication as to any unremediated material weaknesses in its Internal control over financial reporting noted during the audit. Such communication shall be prepared by the accountant within sixty (60) days after the filing of the annual Audited Financial Report, and shall contain a description of any unremediated material weakness (as the term material weakness is defined by AU-C 265  AU Section 325of the Professional Standards of the AICPA, Communicating Internal Control Related Matters Identified in an Audit)Communicating Internal Control Related Matters Identified in an Audit as of December 31 immediately preceding (so as to coincide with the Audited Financial Report discussed in subsection (4)) in the insurer’s Internal control over financial reporting noted by the accountant during the course of their audit of the financial statements. If no unremediated material weaknesses were noted, the communication should so state.

(b) No change.

(12) through (13) No change.

(14) Requirements for Audit Committee.

This section shall not apply to foreign or alien insurers licensed in this state or an insurer that is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity.

(a) through (e) No change.

(f)1. The Audit committee shall require the accountant that performs for an insurer any audit required by this regulation to timely report to the Audit committee in accordance with the requirements of AU-C 260 AU Section 380 of the Professional Standards of the AICPA, The Auditor’s Communication With Those Charged with Governance, Communication with Audit Committees including:

a. through c. No change.

2. If an insurer is a member of an insurance holding company system, the reports required by subparagraph (f)1., may be provided to the Audit committee on an aggregate basis for insurers in the holding company system, provided that any substantial differences among insurers in the system are identified to the Audit committee.

(g) The proportion of independent Audit committee members shall meet or exceed the following criteria:

Prior Calendar Year Direct Written and Assumed Premiums
$0 – 300,000,000	Over $300,000,000 – 500,000,000	Over 500,000,000
No minimum requirements. See also Notes A and B.	Majority (50% or more) of members shall be independent. See also Notes A and B.	Supermajority of members (75% or more) shall be independent. See also Note A.

Note A: The Office has authority afforded by Section 624.4085, F.S., to require the entity’s board to enact improvements to the independence of the Audit committee membership if the insurer is in a Risk Based Capital action level event, meets one or more of the standards of an insurer deemed to be in hazardous financial condition, or otherwise exhibits qualities of a troubled insurer.

Note B: All insurers with less than $500,000,000 in prior year direct written and assumed premiums are encouraged to structure their Audit committees with at least a supermajority of independent Audit committee members.

Note C: Prior calendar year direct written and assumed premiums shall be the combined total of direct premiums and assumed premiums from non-affiliates for the reporting entities.

(h) An insurer with direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $500,000,000 may make application to the Office for a waiver from the subsection (14), requirements based upon hardship. The insurer shall file, with its annual statement filing, the approval for relief from subsection (14), with the states that it is licensed in or doing business in and the NAIC. If the non-domestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

(15) through (19) No change.

(20) Standards Incorporated by Reference.

(a) The following standards are hereby incorporated by reference:

1. AU-C 610 AU Section 319 of the Professional Standards of the AICPA, Using the Work of Internal Auditors; Consideration of Internal Control in a Financial Statement Audit,

2. AU-C 200 AU Section 120 of the Professional Standards of the AICPA, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards; Defining Professional Requirements in Statements on Auditing Standards,

3.  AU-C 560 Volume 1, Section AU 561of the Professional Standards of the AICPA, Subsequent Events and Subsequently Discovered Facts;

4.  AU-C 265 AU Section 325of the Professional Standards of the AICPA, Communicating Internal Control Related Matters Identified in an Audit; and,

5. AU-C 260 AU Section 380of the Professional Standards of the AICPA, The Auditor’s Communication With Those Charged With Governance Communication with Audit Committees; and

6. AU-C Section 940 of the Professional Standards of the AICPA, An Audit of Internal Control Over Financial Reporting That is Integrated With an Audit of Financial Statements.

(b) The standards incorporated in this section are available at the American Institute of CPAs (AICPA) website at: http://www.aicpa.org/Publications.

Rulemaking Authority 624.308(1), 624.4085, 624.424(8)(e) FS. Law Implemented 624.307(1), 624.324, 624.424(8) FS. History–New 3-31-92, Amended 3-14-94, 8-17-98, 4-4-01, 8-14-02, Formerly 4-137.002, Amended 11-3-05, 9-21-10, _____.

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Christopher Struk, Office of Insurance Regulation, E-mail: [e-mail].

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: THE FINANCIAL SERVICES COMMISSION

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: June 13, 2018

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: March 7, 2018