N.Y. Comp. Codes R. & Regs. tit. 11 § 89.5

Current through Register Vol. 46, No. 36, September 4, 2024

Section 89.5 - Qualifications of CPA

(a) A company may utilize a CPA for the purposes specified in this Part provided that the CPA:

(1) meets the definition of a CPA set forth in section 89.1(g) of this Part;

(2) has not either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the company;

(3) acts in conformity with the standards of the accounting profession, such as set forth in the Code of Professional Ethics of the AICPA and Rules and Regulations and Code of Ethics of Professional Conduct of the New York Board of Public Accountancy, or similar code; and

(4) utilizes its staff consistent with the standard prescribed by generally accepted auditing standards.

(b) A company may enter into an agreement with a CPA to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a proceeding commenced under Insurance Law, article 74 against the company, the mediation or arbitration provisions shall apply only with the permission of the successor of the insurer as determined under that article.

(c)

(1) A company shall not utilize the same lead or coordinating CPA as an audit partner who has primary responsibility for the audit for more than five consecutive years. The person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of five consecutive years.

(2) A company may make application to the superintendent for relief from the rotation requirement contained in paragraph (1) of this subdivision on the basis of unusual circumstances. The application shall be made at least 30 days before the end of the calendar year and include the following details:

(i) number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

(ii) premium volume of the company; and

(iii) number of jurisdictions in which the company transacts business.

(3) If relief is granted from the requirements of this subdivision, the company shall file a copy of each grant of relief received by the company with each state in which it is licensed or doing business and with the NAIC.

(d) A company may not utilize for any purpose of this Part any work performed or prepared by a CPA who has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. sections 1961 to 1968, or any dishonest conduct or practices under Federal or State law.

(e)

(1) A company may not utilize for any purpose of this Part any work performed or prepared by a CPA if that CPA also contemporaneously provides any of the following non-audit services to that company:

(i) bookkeeping or other services related to the accounting records or financial statements of the company;

(ii) financial information systems design and implementation;

(iii) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;

(iv) actuarial advisory services involving the determination of amounts recorded in the financial statements. However, the CPA may assist a company in understanding the methods, assumptions and inputs used to determine amounts recorded in the financial statement, but only if it is reasonable to conclude that those amounts will not be subject to question during an audit of the company's financial statements. A CPA's actuary may also issue an actuarial opinion or certification (opinion) on a company's reserves if the following conditions have been met:

(a) neither the CPA nor the CPA's actuary has performed any management functions or made any management decisions;

(b) the company has competent personnel (or engages a third party actuary) to estimate the reserves for which management takes responsibility; and

(c) the CPA's actuary tests the reasonableness of the reserves after the company's management has determined the amount of the reserves;

(v) internal audit outsourcing services;

(vi) management functions or human resources;

(vii) broker or dealer, investment adviser, or investment banking services; or

(viii) legal services or expert services unrelated to the audit.

(2) The company shall attach a statement to its audited annual financial statement, when filed, that the CPA does not function in the role of management, does not audit his or her own work, and does not serve in an advocacy role for the company.

(f) A company may permit a CPA who performs the audit to engage in non-audit services, including tax and other services, which are not prohibited by paragraph (e)(1) of this section, but only if the activity is approved in advance by the audit committee, in accordance with subdivision (h) of this section.

(g) A company having direct written and assumed premiums of less than $100,000,000 in any calendar year may request an exemption from paragraph (e)(1) of this section. The company shall file with the superintendent a written statement discussing the reasons why the company should be exempt from these provisions. The superintendent may grant the exemption upon a finding that compliance would constitute a financial or organizational hardship upon the company.

(h) The company's audit committee shall pre-approve all auditing services and non-audit services provided to the company by a CPA of the company except that a company need not preapprove non-audit services if:

(1) the company is a SOX compliant company or a direct or indirect wholly-owned subsidiary of a SOX compliant company; or

(2)

(i) the aggregate amount of all such non-audit services provided to the company constitute five percent or less of the total amount of fees paid by the company to its CPA during the fiscal year in which the non-audit services are provided;

(ii) the services were not recognized by the company at the time of the engagement to be non-audit services; and

(iii) the services are promptly brought to the attention of the audit committee and approved prior to the completion of the audit by the audit committee, or by one or more members of the audit committee who are the members of the board of directors to whom authority to grant such approvals has been delegated by the audit committee.

(i) The audit committee may delegate to one or more designated members of the audit committee the authority to grant the pre-approvals required by subdivision (h) of this section. The decisions of any member to whom this authority is delegated shall be presented to the full audit committee at each of its scheduled meetings.

(j)

(1) A company shall not utilize a CPA if a member of the board, president, chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for that company, was employed by the CPA and participated in the audit of that company during the one-year period preceding the date that the most current statutory opinion is due. This section shall only apply to partners and senior managers involved in the audit. A company may make application to the superintendent for relief from the above requirement on the basis of unusual circumstances.

(2) The company shall file, with its annual statement filing, the approval for relief from paragraph (1) of this subdivision with the NAIC and the states in which the company is licensed in or otherwise doing business.

N.Y. Comp. Codes R. & Regs. Tit. 11 § 89.5