WHAT ARE MY AUDITORS DOING?

Your Presenter Dianne Batistoni, CPA –EisnerAmper Insurance Group Audit Partner – Bridgewater, NJ – , ext

Agenda The Audit Environment Today The Audit Process and Audit Efficiency Management Oversight Year-round Relationships Value-Added Service

The Audit Environment Today

Today’s Audit Environment Political Environment 37 Governors’ races Insurance Industry “bad” reputation Healthcare Reform MLR’s Dodd-Frank Financial Stability Oversight Council Federal Insurance Office (FIO) Missouri commissioner – John Huff 5

Today’s Audit Environment – Cont’d Regulatory Changes RBC SSAP 10R Solvency II Capital Requirements Governance, Risk Management and Supervision Disclosure and Transparency Company Failures/Liquidations 6

Today’s Audit Environment - Cont’d 7 FASB & SAS –Codification –Record number of new pronouncements IFRS Conversion –Fair Market Value –Principles vs. Rules Based SSAP Impact?

Today’s Audit Environment – Cont’d 8 Other Factors –PCAOB –Peer Review –State Examinations –Audit Risk Alerts

Today’s Audit Environment – Cont’d Changes in the Audit Environment require the auditor to change how they audit –Evaluate the environment –Evaluate the impact on audit client –Evaluate the clients’ assessment of risk and actions taken to remediate/mitigate –Design audit tests

The Audit Process and Audit Efficiency

Audit Requirements: Audit Risk –Environmental Risk –Directional Risk –8- Hour Risk –“What keeps you up at night?” –Historical Issues

The Audit Process and Audit Efficiency Fraud Risk –Who’s responsibility is it? Reputational Risk Regulator Risk Design Procedures to Respond to Risk

The Audit Process and Audit Efficiency Audit Approach –Balance Sheet Approach? –Leverage Existing Controls Documented vs. Undocumented –Materiality Concepts –Risk-Linked Procedures –Regulation Impact Considerations (Market Conduct) –Actuarial Reviews

The Audit Process and Audit Efficiency Audit Reporting –Financial Statements –Report to Audit Committee (SAS 61) –Independence –Qualifications –Internal Controls (115) –Awareness Letters –Audit Adjustments

Audit Efficiency Know your auditor’s audit approach and be ready Understand the risks facing your company and have a plan Avoid the “dump and run” Planning meetings Schedule regular status meetings Prepare financial statements Computer Assisted Audit Ask for budget information 15

Audit Efficiency – Cont’d Using a “Schedule of Schedules” –Target Dates –Responsible Persons –Processes and Controls Documentation –FTP Sites Auditor Focused Schedules Analytics MD&A Staff Availability On-site Technical Reviews

MANAGEMENT OVERSIGHT 17

Management Oversight The role of management and owners –Depth of understanding of business –Control environment –“Tone at the Top” The role of financial managers –More than just financial planning

Management Oversight – cont’d Board of Directors –Understanding of financial statements –Understanding of Insurance Environment Audit Committees –Audit committee charter –Financial Statement Oversight –Statutory accounting concepts IT IS IMPORTANT TO MANAGE EXPECTATIONS

Management Oversight – Cont’d Model Audit Rule Considerations –Audit Partner Rotation Requirements –Audit Committee Independence Rules –Internal Control Assessment

Year-Round Relationships with your Audit Team

Include your auditors on distribution lists –Regulatory filings –Board packages Ask your auditors’ advice before making critical decisions Keep auditors informed regarding business changes Schedule interim meetings Have a closing meeting, ask the “how am I doing questions”

Value Added Service

Value Added Services Leverage your relationship with your auditor –Ask for auditor advice (Are they industry experts?) –Ask for input –Continuing communication –Tax planning Make management recommendation letters a positive rather than a negative Keeping informed regarding industry trends and technical pronouncements Training IT reviews

Value Added Services State Examinations –Risk-focused exam approach relies heavily on Auditor Workpapers –Encourage a meeting –Make sure audit team fully cooperates with exam team –Examinations now require prospective risk analysis 25

Questions?

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