1. Canadian Institute of Actuaries L’Institut canadien des actuaires
2006 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2006
PD-10 Impact of Aug An Actuarial Perspective

2. PD-10 – AuG-43: Impact on Actuaries and Auditors
Jim Christie, FCIA, FCAS E
PD-10 Impact of Aug An Actuarial Perspective

3. Major Impacts on Audit Process
Strong presumption that External Auditor will have Actuarial Specialist on engagement team (§ 8)
Independence considerations mean the Appointed Actuary cannot be the Actuarial Specialist (§ 53)
Requires corroborative evidence as the principal evidence for the auditor’s use of the AA’s work (§ 53)
PD-10 Impact of Aug An Actuarial Perspective

4. PD-10 Impact of Aug 43 - An Actuarial Perspective
AuG 43 - Paragraph 4
The auditor's objective is to obtain sufficient appropriate evidence to provide reasonable assurance that the policy liabilities are reasonable within the context of the financial statements as a whole
PD-10 Impact of Aug An Actuarial Perspective

5. PD-10 Impact of Aug 43 - An Actuarial Perspective
AuG 43 - Paragraph 4
In addition to performing appropriate procedures to test the calculation of the policy liabilities, the auditor considers
complexity and subjectivity of the policy liabilities,
availability and reliability of data,
nature and extent of assumptions required, and
degree of uncertainty of future events
PD-10 Impact of Aug An Actuarial Perspective

6. PD-10 Impact of Aug 43 - An Actuarial Perspective
AuG 43 - Paragraph 4
Policy Liabilities are a point estimate rather than an estimated range
Different actuaries are likely to arrive at different point estimates due to the inherent uncertainties and judgments required in making such estimates
Estimates normally still within a reasonable range
PD-10 Impact of Aug An Actuarial Perspective

7. PD-10 Impact of Aug 43 - An Actuarial Perspective
AuG 43 - Paragraph 4
Differences between such estimates are not necessarily indicative of error, where the estimates are within a reasonable range
The auditor will need to consider a zone of reasonableness within which to accept the policy liabilities as being reasonable within the context of the financial statements as a whole
PD-10 Impact of Aug An Actuarial Perspective

8. Determination of a Reasonable Range
Implies that the actuarial specialist will need to recalculate some policy liabilities
Extent of recalculation will depend
on nature of policy liabilities
internal control processes (such as SOX 404 or CPAB )
Auditor determines extent to which recalculation is needed
PD-10 Impact of Aug An Actuarial Perspective

9. Determination of a Reasonable Range
AA still responsible for his/her point estimate BUT
puts responsibility on External Auditor, with help of the Actuarial Specialist, to ensure the actuarial liabilities are materially correct in the financial statements
PD-10 Impact of Aug An Actuarial Perspective

10. PD-10 Impact of Aug 43 - An Actuarial Perspective
Implications
Actuarial specialist will have to have access to company’s actuarial summary database virtually simultaneously with AA
Actuarial specialist has to provide audit team with reasonable range of estimates
PD-10 Impact of Aug An Actuarial Perspective

11. PD-10 Impact of Aug 43 - An Actuarial Perspective
Issues
Changes to Joint Policy Statement
Duplication of effort between the audit and OSFI External Review processes
CIA Practice Certificates for Actuarial Specialist may be required in 2008
PD-10 Impact of Aug An Actuarial Perspective

12. PD-10 Impact of Aug 43 - An Actuarial Perspective
Issues
No CIA guidance specifically for Actuarial Specialists
Sufficient number of independent actuaries
Impact of additional actuarial review on the audit fees
There WILL BE additional effort required of Appointed Actuary
PD-10 Impact of Aug An Actuarial Perspective

13. Possible Company Initiatives
What can company do to reduce actuarial efforts needed?
Strong internal controls will mitigate amount audit/actuarial review
Thorough documentation of internal actuarial processes NOW
Complete year end financial statements using actuarial support based on Q3 data
PD-10 Impact of Aug An Actuarial Perspective

14. PD-10 Impact of Aug 43 - An Actuarial Perspective
Questions
Jim Christie
PD-10 Impact of Aug An Actuarial Perspective