Guidance Note - Role of the Approved Auditor (December 2013)

Summary

This is a consolidated Bermuda Monetary Authority guidance note explaining the role, appointment, approval and ongoing obligations of the approved auditor for Bermuda registered insurers and insurance groups under the Insurance Act 1978. It replaces two 2005 guidance notes and reflects legislative changes, including the auditor's duty to report matters of material significance and the requirement for designated insurers to ensure their group appoints an approved group auditor.

• Appointment: Every insurer must appoint an Authority approved auditor to audit its statutory financial statements; every designated insurer must ensure its group appoints an approved auditor for the group's GAAP or IFRS financial statements.
• Notification: Insurers must notify the Authority in writing of a proposed approved auditor before registration, and of any change to that information within fourteen days.
• Approval criteria: The Authority assesses proposed auditors for fitness and propriety, independence from the insurer or group, and a letter of undertaking to comply with the Act and ICAB standards.
• Change of auditor: Insurers and designated insurers must obtain prior Authority approval before appointing a new approved auditor, must give written notice of removal or non reappointment, and must provide a written explanation for the change; the outgoing and incoming auditors also have notice obligations.
• Access to information: Insurers and designated insurers must ensure the approved auditor has access to accounting records and relevant staff, including equivalent access from material outsourcing suppliers, and must cooperate with Authority inspections of auditor working papers.
• Reporting obligations: The approved auditor must report material qualifications, adverse opinions, or facts of material significance (e.g. fraud, going concern doubt, material misstatement, material weakness in internal control) to the Authority in writing, and prepare an auditor's report in the prescribed statutory return format.
• Financial statements and returns: Insurers must prepare audited statutory financial statements each year (unless exempted) and file a statutory financial return at the same time as filing those statements.
• Disqualification: The Authority may revoke an auditor's approval if no longer fit and proper, after notifying the auditor and insurer/designated insurer; insurers must act promptly to replace an auditor who is no longer independent or fit and proper.

The revised guidance became effective 31 December 2014 and is intended as a minimum standard; the Authority advises insurers, designated insurers and auditors to consult the Act, Regulations and Rules directly rather than rely solely on this guidance.

Key obligations

• Every insurer must appoint an Authority approved auditor to audit its statutory financial statements (section 16(1) of the Act)
• Every designated insurer must ensure the group of which it is a member appoints an Authority approved auditor to audit the group's GAAP or IFRS financial statements (section 16(1A))
• Insurers must notify the Authority in writing of the proposed approved auditor prior to registration
• Insurers must notify the Authority in writing within fourteen days of any change in the proposed auditor information (section 8)
• Insurers or designated insurers must obtain prior Authority approval before appointing a new approved auditor following a change
• Insurers or designated insurers must give written notice to the Authority when removing an auditor before term expiry or replacing one at term expiry
• The approved auditor must give written notice to the Authority if resigning early, becoming aware he will be replaced, or not seeking reappointment
• Insurers or designated insurers must provide a written explanation for a change in approved auditor; the outgoing auditor must explain the reasons for cessation where applicable
• Insurers or designated insurers must ensure the approved auditor has access to accounting records, data and personnel, including equivalent access from material outsourcing suppliers
• Insurers or designated insurers must take timely steps to appoint an independent, fit and proper auditor if the current approved auditor ceases to meet independence or fit and proper criteria
• The approved auditor must give written notice to the Authority and provide a copy of the report as soon as possible where there is a material qualification, denial of opinion, or adverse opinion
• The approved auditor must give written notice to the Authority upon becoming aware of any fact or matter likely to be of material significance to the Authority's functions under the Act (section 16A(1)(e))
• Insurers must prepare statutory financial statements each financial year audited by the approved auditor, unless exempted by the Authority (section 15)
• Every insurer must file a statutory financial return at the time it files its statutory financial statements
• The approved auditor must sign and address to the Authority an auditor's report in the form prescribed by section 7 of the Insurance Returns and Solvency Regulations 1980

Applies to

registered insurers, designated insurers, insurance groups, approved auditors

Deadlines

• 31 December 2014: Effective date of the revised Guidance Note
• within fourteen days: Insurer must give written notice to the Authority of any change in the proposed auditor information under section 8
• within fourteen days: Authority may fix remuneration for an auditor it appoints itself if the insurer fails to appoint or fill a vacancy, if not previously agreed by the insurer and auditor