| (2) On filing its annual statement, an insurer or HMO for which the commissioner has approved an exemption under paragraph (1) of this subsection shall file the approval with the states in which it is doing business or is authorized to do business and with the National Association of Insurance Commissioners. If a state other than this state accepts electronic filing with the National Association of Insurance Commissioners, the insurer or HMO shall file the approval in an electronic format acceptable to the National Association of Insurance Commissioners. (3) In providing services, the accountant shall not: (A) function in the role of management, audit the accountant's own work, or serve in an advocacy role for the insurer or HMO; or (B) directly or indirectly enter into an agreement of indemnity or release from liability regarding the audit of the insurer or HMO. (4) The commissioner may not recognize as qualified or independent an accountant, or accept an annual audited financial report that was prepared wholly or partly by an accountant, who provides an insurer or HMO at the time of the audit: (A) bookkeeping or other services related to the accounting records or financial statements of the insurer or HMO; (B) services related to financial information systems design and implementation; (C) appraisal or valuation services, fairness opinions, or contribution-in-kind reports; (D) actuarially oriented advisory services involving the determination of amounts recorded in the financial statements; (E) internal audit outsourcing services; (F) management or human resources services; (G) broker or dealer, investment adviser, or investment banking services; (H) legal services or other expert services unrelated to the audit; or (I) any other service that the commissioner determines to be inappropriate. (5) Notwithstanding paragraph (4)(D) of this subsection, an accountant may assist an insurer or HMO in understanding the methods, assumptions, and inputs used in the determination of amounts recorded in the financial statement if it is reasonable to believe that the advisory service will not be the subject of audit procedures during an audit of the insurer's or HMO's financial statements. An accountant's actuary may also issue an actuarial opinion or certification on an insurer's or HMO's reserves if: (A) the accountant or the accountant's actuary has not performed management functions or made any management decisions; (B) the insurer or HMO 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 or HMO's management has determined the amount of the reserves. (6) An insurer or HMO that has direct written and assumed premiums of less than $100 million in any calendar year may request an exemption from the requirements of paragraph (4) of this subsection by filing with the commissioner a written statement explaining why the insurer or HMO should be exempt. The commissioner may grant the exemption if the commissioner finds that compliance with paragraph (4) of this subsection would impose an undue financial or organizational hardship on the insurer or HMO. (7) An accountant who performs an audit may perform non-audit services, including tax services, that are not described in paragraph (4) of this subsection or that do not conflict with paragraph (3) of this subsection, only if the activity is approved in advance by the audit committee in accordance with paragraph (8) of this subsection. (8) The audit committee must approve in advance all auditing services and non-audit services that an accountant provides to the insurer or HMO. The prior approval requirement is waived with respect to non-audit services if the insurer or HMO 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 non-audit services provided to the insurer or HMO is not more than five percent of the total amount of fees paid by the insurer or HMO to its accountant during the fiscal year in which the non-audit services are provided; (B) the services were not recognized by the insurer or HMO 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 before the completion of the audit by the audit committee or by one or more members of the audit committee who are the members of the board of directors to whom the audit committee has delegated authority to grant approvals. (9) The audit committee may delegate to one or more designated members of the audit committee the authority to grant the prior approval required by paragraph (7) of this subsection. The decisions of any member to whom this authority is delegated shall be presented to the full audit committee at each of its scheduled meetings. (10) The commissioner may not recognize an accountant as qualified or independent for a particular insurer or HMO if a member of the board, the president, chief executive officer, controller, chief financial officer, chief accounting officer, or any individual serving in an equivalent position for the insurer or HMO, was employed by the accountant and participated in the audit of that insurer or HMO during the one-year period preceding the date on which the most current statutory opinion is due. This paragraph applies only to partners and senior managers involved in the audit. An insurer or HMO may apply to the commissioner for an exemption from the requirements of this paragraph on the basis of unusual circumstances. (11) The commissioner shall not accept an audited financial report prepared wholly or partly by an individual or firm who the commissioner finds: (A) has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. §1961 et seq.), or a state or federal criminal offense involving dishonest conduct; (B) has violated the insurance laws of this state with respect to a report filed under the Insurance Code Chapter 401, Subchapter A, or this section; (C) has demonstrated a pattern or practice of failing to detect or disclose material information in reports filed under the Insurance Code Chapter 401, Subchapter A, or this section; or (D) has directly or indirectly entered into an agreement of indemnity or release of liability regarding an audit of an insurer. (12) The insurer or HMO shall file, with its annual statement filing, the approval of an exemption granted under paragraph (6) or (10) of this subsection with the states in which it does business or is authorized to do business and with the National Association of Insurance Commissioners. If a state, other than this state, in which the insurer or HMO does business or is authorized to do business accepts electronic filing, the insurer or HMO shall file the approval in an electronic format acceptable to the National Association of Insurance Commissioners. (i) Accountant's Letter of Qualifications. The audited financial report required under the Insurance Code §401.004 must be accompanied by a letter, provided by the accountant who performed the audit, that includes the representations and statements required under the Insurance Code §401.013, and a representation that the accountant is in compliance with the requirements specified in subsection (h) of this section. (j) Communication of Internal Control Matters Noted in Audit. (1) In addition to the audited financial report required by the Insurance Code Chapter 401, Subchapter A, and this section, each insurer or HMO shall provide to the commissioner a written communication prepared by an accountant in accordance with the Professional Standards of the American Institute of Certified Public Accountants that describes any unremediated material weaknesses in its internal controls over financial reporting noted during the audit. The insurer or HMO shall annually file with the commissioner the communication required by this subsection not later than the 60th day after the date the audited financial report is filed. The communication must contain a description of any unremediated material weaknesses, as defined by Statement on Auditing Standards No. 112, "Communicating Internal Control Related Matters Identified in an Audit," or a successor document, as of the immediately preceding December 31, in the insurer's or HMO's internal control over financial reporting that was noted by the accountant during the course of the audit of the financial statements. The communication must affirmatively state if unremediated material weaknesses were not noted by the accountant. (2) The insurer or HMO shall also provide a description of remedial actions taken or proposed to be taken to correct unremediated material weaknesses, if the actions are not described in the accountant's communication. (k) Requirements for Audit Committees. Cont'd... |
