Insurance (exemption) determination No. 2 of 2005 – audit requirements applying to certain yearly statutory accounts under GRS 170.1
EXPLANATORY STATEMENT
Issued by the authority of the Australian Prudential Regulation Authority (APRA)
Insurance Act 1973
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.)
Legislative background
Section 13 of the Financial Sector (Collection of Data) Act 2001 (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, section 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.
Background to Insurance Exemption Determination No. 1 of 2005
On 21 June 2005, APRA determined a suite of 28 reporting standards applying to general insurers. They contained a number annual reporting requirements in relation to which APRA did not intend that auditing requirements under the Insurance Act would apply.
These were, 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).
Accordingly, on 27 July 2005, APRA made Insurance Exemption Determination No. 1 of 2005, which provided that those annual reporting documents, required from general insurers under reporting standards made under s 13 of the FSCOD Act, were not required to be audited, and an audit certificate is not required to be provided or lodged in relation to them.
APRA had not previously required regulated general insures to undertake an audit of returns prepared on a consolidated group basis, and Insurance Exemption Determination No. 1 of 2005 effectively formalised this position.
The need for Insurance (exemption) determination No. 2 of 2005
Since the making of Insurance Exemption Determination No. 1 of 2005, APRA has made an additional reporting standard (under s 13 of the FSCOD Act) in relation to general insurers, namely Reporting Standard GRS 170.1 (determined under Financial Sector (Collection of Data) determination No. 106 of 2005).
Reporting Standard GRS 170.1 applies to general insurers that are lenders mortgage insurers (LMIs).
Like the reporting standards made in relation to general insurers earlier in the year, it contains an annual reporting requirement in respect of a Consolidated insurance group of an LMI (in addition to reporting requirements applying on a stand-alone or Licensed insurer basis).
Reporting Standard GRS 170.1 was made after Insurance Exemption Determination No. 1 of 2005, and that exemption determination does not apply to it. Therefore it is necessary for APRA to make an exemption determination specifically in relation to the reporting requirement for a Consolidated insurance group in GRS 170.1. That is the purpose of Insurance (exemption) determination No. 2 of 2005.
The Determination
Insurance (exemption) determination No. 2 of 2005 does the following:
- it exempts the approved auditor of a general insurer from the requirement in paragraph 49J(1)(a) of the Insurance Act to audit any annual information in relation to a Consolidated insurance group provided under Reporting Standard GRS 170.1;
- it exempts a general insurer from the requirement in subsection 49J(2) of the Insurance Act to make arrangements for the auditing of any annual information in relation to a Consolidated insurance group provided under Reporting Standard GRS 170.1;
- it exempts the approved auditor of a general insurer from the requirement in subsection 49J(3) of the Insurance Act to give a certificate in relation to any annual information concerning a Consolidated insurance group provided under Reporting Standard GRS 170.1; and
- it exempts a general insurer from the requirement in paragraph 49L(1)(a) of the Insurance Act to lodge a certificate in relation to any annual information concerning a Consolidated insurance group provided under Reporting Standard GRS 170.1.
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 from 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.