NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205)
The NAIC Model Audit Rule as States adopt it: the annual audit of statutory financial statements by an independent CPA filed by 1 June, the accountant's registration, qualifications, five-year lead partner rotation, prohibited non-audit services and audit committee pre-approval, the accountant's letter of qualifications and seven-year work paper access, five-business-day reporting of material misstatement or capital shortfall, the sixty-day communication of unremediated material weaknesses, audit committee responsibilities and independence thresholds by premium, the internal audit function for insurers above five hundred million dollars of premium, the ban on misleading or coercing the auditor, and management's signed report on internal control over financial reporting.
NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) is a compliance framework from United States (model for State adoption) with 5 domains and 21 controls. The largest domains are Sections 6, 7, 12 and 13: the independent certified public accountant, designation, qualifications, independence, letter of qualifications and work papers – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) (8 controls), Sections 4, 5, 8 and 9: the annual audited financial report, its filing, contents, consolidated audits and audit scope – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) (5 controls), Sections 14, 15 and 16: audit committee, internal audit function and conduct of the insurer towards the auditor – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) (4 controls). Every control below carries what it requires and what an assessor expects to see.
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Framework Domains (5)
Section 17: management's report of internal control over financial reporting – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205)
| Code | Title |
|---|---|
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s17a-c-icfr-report-threshold | Insurers with five hundred million dollars or more of premium file management's report on internal control over financial reporting, or a section 404 report with an addendum |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s17d-e-icfr-report-content | The management report contains the seven required statements, is signed by the CEO and CFO, and is supported by retained documentation |
Sections 10 and 11: notification of adverse financial condition and communication of internal control matters – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205)
| Code | Title |
|---|---|
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s10-adverse-condition | Have the accountant report a material misstatement or capital shortfall to the board within five business days, and forward it to the commissioner within five more |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s11-material-weaknesses | File the accountant's communication of unremediated material weaknesses within sixty days of the audited report, with the insurer's remediation description |
Sections 14, 15 and 16: audit committee, internal audit function and conduct of the insurer towards the auditor – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205)
| Code | Title |
|---|---|
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s14-audit-committee-duties | The audit committee appoints, pays and oversees the accountant, resolves disputes with management and oversees internal audit |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s14-independence | Meet the audit committee independence thresholds: a majority above three hundred million dollars of premium, three quarters above five hundred million |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s15-internal-audit | Insurers above five hundred million dollars of premium, or in groups above one billion, maintain an independent internal audit function reporting to the audit committee at least annually |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s16-conduct-toward-auditor | Directors and officers must not mislead, coerce, manipulate or fraudulently influence the accountant |
Sections 4, 5, 8 and 9: the annual audited financial report, its filing, contents, consolidated audits and audit scope – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205)
| Code | Title |
|---|---|
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s4a-annual-audit-june1 | Obtain an annual audit by an independent CPA and file the audited financial report with the commissioner by 1 June |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s4d-audit-committee-designation | Designate the audit committee, or elect the controlling entity's audit committee with written notice to the commissioners |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s5-report-contents | The audited financial report presents statutory-basis statements, comparative, in annual statement form, with the required notes and reconciliation |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s8-consolidated-audits | File consolidated or combined audited statements only with approval and with the columnar consolidating worksheet |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s9-audit-scope | The audit follows generally accepted auditing standards with the accountant's consideration of internal control and of the latest management report |
Sections 6, 7, 12 and 13: the independent certified public accountant, designation, qualifications, independence, letter of qualifications and work papers – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205)
| Code | Title |
|---|---|
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s12-letter-of-qualifications | Include in the filing the accountant's letter of qualifications on independence, staff experience, reliance by the commissioner, work paper access and licensing |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s13-work-papers | Require the accountant to make work papers and audit communications available to examiners and to retain them for up to seven years |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s6-designate-accountant | Register the accountant with the commissioner within sixty days and file the accountant's awareness letter |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s6c-dismissal-notice | Notify the commissioner within five business days of an accountant's dismissal or resignation and report disagreements within ten business days |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s7-qualifications-rotation | Use only a qualified accountant: good standing, no indemnification, lead partner rotation after five years, and no disqualifying history |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s7g-prohibited-services | Do not accept from the auditor, during the audit, bookkeeping, systems design, valuation, actuarial determination, internal audit outsourcing, management, broker-dealer, investment or legal services |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s7ijk-preapproval | The audit committee pre-approves all audit and non-audit services, subject to the SOX and five-per-cent de minimis waivers |
| naic-annual-financial-reporting-model-regulation-model-audit-rule-mdl-205::mdl205-s7l-cooling-off | Do not use an accountant where a senior officer or director was on its audit team for the insurer in the past year |
What is NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) and who does it apply to?
NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) is a compliance framework from United States (model for State adoption) with 5 domains and 21 controls. The NAIC Model Audit Rule as States adopt it: the annual audit of statutory financial statements by an independent CPA filed by 1 June, the accountant's registration, qualifications, five-year lead partner rotation, prohibited non-audit services and audit committee pre-approval, the accountant's letter of qualifications and seven-year work paper access, five-business-day reporting of material misstatement or capital shortfall, the sixty-day communication of unremediated material weaknesses, audit committee responsibilities and independence thresholds by premium, the internal audit function for insurers above five hundred million dollars of premium, the ban on misleading or coercing the auditor, and management's signed report on internal control over financial reporting. It is used by organisations to establish and maintain compliance with industry standards and regulatory requirements.
What does NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) actually require?
NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) has 21 controls organised across 5 domains. The largest domains are Sections 6, 7, 12 and 13: the independent certified public accountant, designation, qualifications, independence, letter of qualifications and work papers – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) (8 controls), Sections 4, 5, 8 and 9: the annual audited financial report, its filing, contents, consolidated audits and audit scope – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) (5 controls), Sections 14, 15 and 16: audit committee, internal audit function and conduct of the insurer towards the auditor – NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) (4 controls). Each control defines specific requirements that organisations must implement to achieve compliance.
If I already comply with another framework, how much of NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) do I already cover?
NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205) does not currently have cross-framework mappings in our system. Check back as we continuously expand our mapping database.
How do I implement NAIC Annual Financial Reporting Model Regulation (Model Audit Rule, MDL-205)?
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