Through a series of blogs, SIGMA has begun to address some common questions, requirements and issues based on our previous experience with clients and auditors. The first blog in the series focused on actuarial qualifications and an actuarial qualification statement. This blog will focus on auditor inquiries related to actuarial independence.
The interaction with auditors, related to independence, normally takes one of two forms:
- The auditor provides a letter with certain independence “affirmations” for the actuary to sign in relationship to the actuarial work. The letter is then returned to the audit firm.
- The auditor requests the actuary issue an independence letter for the actuarial work.
In regards to letters provided by the auditors, the affirmations normally focus on confirming that there are no relationships, either financial or other, that would impede the actuary from completing independent, unbiased actuarial analysis. Specific items often mentioned for confirmation are:
- That there is no business relationship between the actuarial firm and the company
- That the actuary and actuarial firm is not employed in any way by the company – other than that of independent consultant
- That the actuary and actuarial firm have no financial interest in the company
- That the actuarial firm does not employ board members or officers of the company
In regards to an independence letter we normally issue a letter with verbiage similar to the following:
|As an independent consultant, neither I, L. Michelle Bradley, nor any employees of my firm have any relationship with the company that would impair our objectivity. No employee of SIGMA Actuarial Consulting has or had any direct financial interest in the company. Nor has any one of us acted as an officer, director, or employee of the company. We have had no relationship with the company other than that as an independent consultant.|
The actuarial Code of Professional Conduct has a conflict of interest precept that should be considered:
Conflict of Interest
PRECEPT 7. An Actuary shall not knowingly perform Actuarial Services involving an actual or potential conflict of interest unless:
- the Actuary’s ability to act fairly is unimpaired;
- there has been disclosure of the conflict to all present and known prospective Principals whose interests would be affected by the conflict; and
- all such Principals have expressly agreed to the performance of the Actuarial Services by the Actuary.
Normally, the independence of the actuary should be confirmed on the front end of a project and the audit process should simply be documentation of that independence.
We welcome your feedback by posting a comment, or contact Jeff at jeff@SIGMAactuary.com or Michelle at mb@SIGMAactuary.com
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© 2012 SIGMA Actuarial Consulting Group, Inc.