HAR §16-185-107. Consolidated or combined audits

An insurer may make written application to the commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies that utilizes a pooling or one hundred per cent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows: (1) Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet; (2) Amounts for each insurer subject to this section shall be stated separately; (3) Noninsurance operations may be shown on the worksheet on a combined or individual basis; (4) Explanations of consolidating and eliminating entries shall be included; and (5) A reconciliation shall be included of any differences between the amounts shown in the §16-185-108 185-17 individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers. [Eff 2/04/10; comp 12/30/19] (Auth: HRS §431:2-201) (Imp: HRS §§431:2-201, 431:3-302.5) §16-185-108 Scope of audit and report of independent certified public accountant. (a) Financial statements furnished pursuant to section 16- 185-104 shall be examined by the independent certified public accountant. (b) The audit of the insurer's financial statements shall be conducted in accordance with generally accepted auditing standards. In accordance with AU section 314 of the Professional Standards of the American Institute of Certified Public Accountants, Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, as amended or replaced, the independent certified public accountant shall obtain an understanding of internal control sufficient to plan the audit. To the extent required by AU 314, for those insurers required to file a management's report of internal control over financial reporting pursuant to section 16-185-115, Hawaii Administrative Rules, the independent certified public accountant should consider, as that term is defined in Statement on Auditing Standards No. 102, Defining Professional Requirements in Statements on Auditing Standards as amended or replaced, the most recently available report in planning and performing the audit of the statutory financial statements. Consideration shall be given to the procedures illustrated in the Financial Condition Examiners Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary. [Eff 2/04/10; am and comp 12/30/19] (Auth: HRS §431:2-201) (Imp: HRS§§ 431:2-201, 431:3-302.5) §16-185-109 185-18 §16-185-109 Notification of adverse financial condition. (a) The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within five business days to the board of directors or its audit committee, any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under audit or that the insurer does not meet the minimum capital and surplus requirement of the Hawai`i insurance code as of that date. An insurer that has received a report pursuant to this paragraph shall forward a copy of the report to the commissioner within five business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the commissioner. If the independent certified public accountant fails to receive the evidence within the required five business day period, the independent certified public accountant shall furnish to the commissioner a copy of its report within the next five business days. (b) No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if the statement is made in good faith in compliance with subsection (a). (c) If the accountant, subsequent to the date of the audited financial report filed pursuant to this chapter, becomes aware of facts that might have affected the report, the accountant shall take appropriate action as prescribed in volume 1, section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants. [Eff 2/04/10; am and comp 12/30/19] (Auth: HRS §431:2- 201) (Imp: HRS §§431:2-201, 431:3-302.5) §16-185-111 185-19 §16-185-110 Communication of internal control related matters noted in an audit. (a) In addition to the annual audited financial report, each insurer shall furnish the commissioner with a written communication as to any unremediated material weaknesses in its internal control over financial reporting noted during the audit. Such communication shall be prepared by the accountant within sixty days after the filing of the annual audited financial report, and shall contain a description of any unremediated material weakness as of December 31 immediately preceding, so as to coincide with the audited financial report discussed in section 16-185- 103, Hawaii Administrative Rules, in the insurer's internal control over financial reporting noted by the accountant during the course of their audit of the financial statements. The communication should state if no unremediated material weaknesses were noted. (b) The insurer is required to provide a description of remedial actions taken or proposed to correct unremediated material weaknesses, if the actions are not described in the accountant's communication. [Eff 2/04/10; am and comp 12/30/19] (Auth: HRS §431:2-201) (Imp: HRS §§431:2-201, 431:3-302.5) §16-185-111 Accountant's letter of qualifications. The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating: (a) That the accountant is independent with respect to the insurer and conforms to the standards of the accounting profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants, chapter 466, HRS, chapter 16-71, Hawaii Administrative Rules, and the §16-185-111 185-20 Hawai`i Board of Public Accountancy, or similar statutes, rules, and code of conduct regulating the practice of accountancy in the state in which the accountant is licensed to practice; (b) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this chapter shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where that use is consistent with the standards prescribed by generally accepted auditing standards; (c) That the accountant understands the annual audited financial report and his or her opinion thereon will be filed in compliance with this chapter and that the commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers; (d) That the accountant consents to the requirements of section 16-185-112 and consents and agrees to make available for review by the commissioner, or the commissioner's designee or appointed agent, the workpapers as defined in section 16-185-112, Hawaii Administrative Rules; (e) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and (f) A representation that the accountant is in compliance with the requirements of section 16-185- 106, Hawaii Administrative Rules. [Eff 2/04/10; am and comp 12/30/19] (Auth: HRS §431:2-201) (Imp: HRS §§431:2-201, 431:3-302.5) §16-185-112 Definition, availability, and maintenance of independent certified public accountants workpapers. (a) Workpapers are the records kept by the independent certified public §16-185-112 185-21 accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant's audit of the financial statements of an insurer. Accordingly, workpapers may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules, or commentaries prepared or obtained by the independent certified public accountant in the course of his or her audit of the financial statements of an insurer and which support the accountant's opinion. (b) Every insurer required to file an audited financial report pursuant to this chapter, shall require the accountant to make available for review by insurance division examiners, all workpapers prepared in the conduct of the accountant's audit and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the insurance division or at any other reasonable place designated by the commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the insurance division has filed a report on examination covering the period of the audit but no longer than seven years from the date of the audit report. (c) In the conduct of the aforementioned periodic review by the insurance division examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the division. Such reviews by the division examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the division. [Eff 2/04/10; comp 12/30/19] (Auth: HRS §431:2-201) (Imp: HRS §§431:2-201, 431:3-302.5) §16-185-113 185-22