QuestionsQuestions (IC CIRCULAR NO. 29-2009)
The Circular is issued pursuant to Section 414 of the Insurance Code and the MOA dated 12 August 2009 binding the IC, BSP, SEC, and BOA. It aims to set revised, synchronized rules on the accreditation and delisting of external auditors and auditing firms for covered insurance-related entities under IC jurisdiction.
Coverage includes companies under IC jurisdiction. Group A: (1) insurance companies, (2) reinsurance companies, (3) mutual benefit associations. Group B: (1) insurance and reinsurance brokers, (2) general agents, (3) trusts for charitable uses.
External Auditor means a single practitioner or a signing partner in an auditing firm. Auditing Firm includes proprietorship, partnership, corporation, or other legal entity (and associated persons) engaged in public accounting practice or preparing/issuing audit reports.
Fraud is an intentional act that may reduce consolidated total assets by 5%, including manipulation/falsification/alteration, misappropriation, suppression/omission of effects, recording without substance, intentional misapplication of accounting policies, or omission of material information. Error is an unintentional mistake reducing consolidated total assets by 5%, including mathematical/clerical mistakes, oversight/misinterpretation, or unintentional misapplication of accounting policies. Gross negligence is wanton or reckless disregard of the duty of due care in complying with Generally Accepted Auditing Standards.
The external auditor must be changed or the signing partner must be rotated every five years or less.
They have a one (1) year period from the effectivity date to either change their external auditors/auditing firm or rotate the signing partner.
No. Section 4.5 states accreditation does not exonerate the reporting company or auditors from responsibilities. Management remains primarily responsible for the fairness of filed financial statements, while the auditor’s responsibility is confined to expressing an opinion (or lack thereof) based on the examination.
Accreditation expires or the auditor/auditing firm is automatically delisted after three (3) years from approval unless renewal is filed not later than sixty (60) days before expiration. It is subject to continuous monitoring and periodic evaluation.
Auditing firms accredited by IC for Group A are automatically qualified to audit Group B. Individual external auditors accredited by IC may audit only covered entities under Group B.
Primarily accredited by BOA; at least 5 years external audit experience acquired as in-charge/manager/partner; adequate established quality assurance procedures reflected in the Manual and clients’ financial statements; notarized certifications regarding no conflicts/financial interest, no loans to/from regulated entities or their officers/directors/principal stockholders, no employment/officer/director/consultant relationship with regulated entities and not appointed conservator/receiver/liquidator; and obligation to preserve working papers for 5 years and make them available to IC.
At least 2 of the required 5 years must be spent auditing the type of entity covered. Alternatively, auditors with 5 years regular audit experience but without insurance experience may be considered if they attended/participated in at least 40 hours of insurance/reinsurance accounting/auditing seminars conducted by IIAP or IC-recognized organizations, and they have sufficient knowledge of regulatory requirements and operations of the specific companies they apply to audit.
Firm must be primarily BOA-accredited and its applicant partners’ names must appear in the BOA certificate attachment; additional partners are furnished as addendum. At application time it must have at least one signing partner already accredited or qualified and applying with IC. It must have quality assurance procedures reflected in its Manual and partners’ audit clients’ financial statements.
A duly accomplished and notarized IC Form A; certified true copy of updated BOA Certificate; proof of audit experience (list of corporate clients showing engagement period); Quality Assurance Manual with required audit procedures and written description of quality assurance process, ethics/independence monitoring, and other QA policies consistent with PSA standards; notarized undertaking of compliance with qualification requirements; seminar attendance/participation of at least 40 hours; and copy of latest audited financial statements (AFS) of the two largest clients by total assets.
Initial or renewal application for an external auditor/partner: P2,000. For an auditing firm: P5,000.
They must not accept non-audit services that affect independence, including bookkeeping/accounting record or FS-related services; information systems design/implementation/assessment; appraisal or valuation; actuarial services; internal audit functions or outsourcing; management or HR services; underwriting/investment dealer/adviser/manager; legal services and expert services unrelated to the audit; and any other services IC declares as not permissible.
External auditor/auditing firm must report to IC within 30 calendar days after discovery: material findings involving fraud or error; under-reserving of IBNR losses/policy reserves leading to capital deficiency/impairment; findings that going-concern consolidated assets no longer cover total liabilities; material internal control weaknesses that may cause financial reporting problems; termination/resignation and reason; discovery of material breach of laws/IC rules; and findings on corporate governance requiring urgent action. If there are no matters to report, a notarized certification must be submitted within 15 calendar days after closing of engagement stating none to report.
Examples: failure to submit the report under Section 10; continuous conduct of audit despite loss of independence; willful misrepresentation in application/renewal materials or required notarized certifications; gross negligence resulting in non-compliance with GAAS or unsupported unqualified opinion; conviction for crimes involving moral turpitude/fraud or liability for violation of Insurance Code/Corporation Code/IC-related rules; refusal to submit documents upon lawful order; or being involved in a major accounting/auditing scam or scandal (with delisting depending on gravity/impact).
It provides that SEC, BSP, and IC mutually recognize accreditation granted by any of them for certain groups/categories: Group C or D companies under SEC; SEC Category B and C under BSP; and Group B under IC—subject to the MOA’s mutual recognition framework.