| (B) the communication of internal control-related matters
noted in the audit that is substantially similar to the communication
required under subsection (j) of this section, not later than the
60th day after the date the copy of the audited financial report and
accountant's letter of qualifications are filed with the commissioner;
and
(C) any notification of adverse financial conditions
report filed with the other state, in accordance with the filing date
prescribed by Insurance Code §401.017.
(2) A foreign or alien insurer or HMO required to file
management's report of internal control over financial reporting in
another state is exempt from filing the report in this state under
subsection (n)(1) of this section if the other state has substantially
similar reporting requirements and the report is filed with the commissioner
in that state in the time specified.
(f) Requirements for financial statements in audited
financial report. The financial statements included in the audited
financial report must be prepared in a form and use language and groupings
substantially the same as the relevant sections of the annual statement
of the insurer or HMO filed with the Commissioner. The financial statements
must be comparative, including amounts on December 31 of the current
year and amounts as of the immediately preceding December 31, except
for the first year in which an insurer or HMO is required to file
the report.
(g) Scope of audit and report of accountant. An accountant
must audit the financial reports provided by an insurer or HMO for
purposes of an audit conducted under Insurance Code Chapter 401, Subchapter
A. In addition to complying with the requirements of the Insurance
Code §401.010, the accountant shall obtain an understanding of
internal control sufficient to plan the audit, in accordance with
"Consideration of Internal Control in a Financial Statement Audit,"
AU Section 319, Professional Standards of the American Institute of
Certified Public Accountants. To the extent required by AU Section
319, for those insurers or HMOs required to file a management's report
of internal control over financial reporting under subsection (n)
of this section, the accountant shall consider the most recently available
report in planning and performing the audit of the statutory financial
statements. In this subsection, "consider" has the meaning assigned
by Statement on Auditing Standards No. 102, "Defining Professional
Requirements in Statements on Auditing Standards," or a successor
document.
(h) Qualifications and independence of accountant;
acceptance of audited financial report. Except as provided by Insurance
Code §401.011(b) and (d), and paragraphs (1), (3), (4), (5),
and (10) of this subsection, the Commissioner will accept an audited
financial report from an independent certified public accountant or
accounting firm that is a member in good standing of the American
Institute of Certified Public Accountants; is in good standing with
all states in which the accountant or firm is licensed to practice,
as applicable; and conforms to the American Institute of Certified
Public Accountants Code of Professional Conduct and to the rules of
professional conduct and other rules of the Texas State Board of Public
Accountancy or a similar code.
(1) A lead partner or other person responsible for
rendering an audited financial report for an insurer or HMO may not
act in that capacity for more than five consecutive years and may
not, during the five-year period after that fifth year, render an
audited financial report for the insurer or HMO or for a subsidiary
or affiliate of the insurer or HMO that is engaged in the business
of insurance. On application made at least 30 days before the end
of the calendar year, the Commissioner may determine that the limitation
provided by this paragraph does not apply to an accountant for a particular
insurer or HMO if the insurer or HMO demonstrates to the satisfaction
of the Commissioner that the limitation's application to the insurer
or HMO would be unfair because of unusual circumstances. In making
the determination, the Commissioner may consider:
(A) the number of partners or individuals the accountant
employs, the expertise of the partners or individuals the accountant
employs, or the number of the accountant's insurance clients;
(B) the premium volume of the insurer or HMO; and
(C) the number of jurisdictions in which the insurer
or HMO engages in business.
(2) On filing its annual statement, an insurer or HMO
for which the Commissioner has approved an exemption under paragraph
(1) of this subsection must 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 must file the approval
in an electronic format acceptable to the National Association of
Insurance Commissioners.
(3) In providing services, the accountant may 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
Cont'd... |
