Insurance Exemption Determination No. 1 of 2005 - Audit requirements relating to certain yearly statutory accounts

Insurance Exemption Determination No. 1 of 2005 – audit requirements applying to certain yearly statutory accounts

EXPLANATORY STATEMENT

Issued by the authority of the Australian Prudential Regulation Authority (‘APRA’)

Insurance Act 1973, s 7

Subsection 7(1) of the Insurance Act 1973 (the Insurance Act) provides that APRA may determine that all or specified provisions of the Insurance Act do not apply to a person while the determination is in force.  Paragraph 7(2)(a) provides that a determination may be expressed to apply to a particular person or a class of persons.  Subsection 7(3) provides that such a determination must be published in the Gazette and, upon publication in the Gazette, has effect according to its terms.  (However, where a subsection 7(1) determination applies to a class of persons, as the present one does, it will be a legislative instrument within the meaning of the Legislative Instruments Act 2003 (the Legislative Instruments Act), and therefore be subject to the requirement to be registered on the Federal Register of Legislative Instruments under that Act.  The effect of s 56 of the Legislative Instruments Act is that registration will effectively satisfy the obligation to gazette the determination.)

The purpose of Insurance Exemption Determination No. 1 of 2005 is to provide that certain annual reporting documents, required from general insurers under reporting standards made under s 13 of the Financial Sector (Collection of Data) Act 2001 (the FSCOD Act), are not required to be audited, and an audit certificate is not required to be provided or lodged in relation to them. 

These are, broadly: (1) annual reporting documents required in respect of a consolidated insurance group (as distinct from annual reports required from a stand-alone insurer); and (2) annual reporting documents required under Reporting Standards GRS 400.0 (2005), GRS 420.0 (2005), GRS 420.0 (2005), GRS 430.0 (2005), GRS 440.0 (2005) and GRS 450.0 (2005) (made under Financial Sector (Collection of Data) Determinations 23 to 28 of 2005, respectively).

Legislative background

Section 13 of the FSCOD Act gives APRA power to determine reporting standards that must be complied with by financial sector entities, including general insurers.  Reporting standards may require information of a financial nature or of a more general business nature. 

The FSCOD Act does not specifically address the auditing requirements in relation to reporting documents given under reporting standards.  For general insurers, these are provided for in the Insurance Act. 

In this regard, s 3 of the Insurance Act contains a definition of ‘yearly statutory accounts’, which is defined to mean, in relation to a body corporate (e.g., a general insurer), the reporting documents that the body corporate is required under section 13 of the FSCOD Act to lodge with APRA in respect of a financial year.

Paragraph 49J(1)(a) of the Insurance Act provides that an auditor of a general insurer (that is, an auditor approved by APRA under s 40 of the Act) must audit the yearly statutory accounts.  Subsection 49J(3) provides that the auditor must give the general insurer a certificate relating to the yearly statutory accounts, which must contain statements of the auditor's opinion on the matters required by the prudential standards to be dealt with in the certificate.  Paragraph 49L(1)(a) provides that a general insurer must lodge such a certificate with APRA.

On 21 June 2005, APRA determined a new suite of 28 reporting standards applying to general insurers. They contain the annual reporting requirements indicated in the third column of the table below.  The annual reporting documents that will be exempt from the auditing and certificate requirements are in italics (the normal auditing and certificate requirements will apply to the remainder): 

APRA has not previously required regulated general insures to undertake an audit of returns prepared on a consolidated group basis.  Insurance Exemption Determination No. 1 of 2005 proposes to maintain and formalise this position.

Consultation

In March 2005, APRA wrote to all general insurers and advised that: (1) APRA was proposing to bring each of the reporting standards in the 100, 200 and 300 series into line with the then current reporting arrangements by formalising the requirement to lodge an annual reporting form; and (2) APRA would be excluding the annual reports in the 400 series form the auditing and auditor’s certificate requirements in the Insurance Act. 

APRA received seven submissions in response to the consultation letter, all of which expressed no objection to the proposed changes.

APRA did not consult on the exclusion of the auditing and auditor’s certificate obligations in relation to the annual reporting documents relating to Consolidated Insurance Groups.  However, prior to the making of Financial Sector (Collection of Data) Determinations Nos. 1 to 28 of 2005, there was no formal obligation to provide annual reporting documents under the previous reporting standards applying to general insurers.  Annual reporting documents relating to Consolidated Insurance Groups were provided informally, but they were not audited.  Insofar as the present exemption determination exempts insurers and auditors from having to audit the annual reporting documents relating to Consolidated Insurance Groups it maintains the status quo by relieving insurers of the burden of having to arrange for the auditing of these accounts.

Commencement date

The exemption is expressed to have effect from 30 June 2005.  It should be noted that this benefits insurers and auditors of insurers, in that it makes it clear that they have not been required to take steps, between the end of the financial year and the date of the exemption coming into effect, to audit or arrange for the auditing of the relevant exempt accounts.   Accordingly, the early commencement date is consistent with subsection 12(2) of the Legislative Instruments Act 2003.