2023 District of Columbia Code › Title 31 - Insurance and Securities › Chapter 3 - Annual Audited Financial Reports › § 31–305. Qualifications of independent certified public accountant

§ 31–305. Qualifications of independent certified public accountant.
(a) The Mayor shall not recognize a person or firm as a qualified independent certified public accountant if the person or firm:
(1)(A) Is not in good standing with the American Institute of Certified Public Accountants in all jurisdictions in which the accountant is licensed to practice; or
(B) For a Canadian or British company, is not a chartered accountant; or
(2) Has either directly or indirectly entered into an agreement of indemnity or release from liability with respect to the audit of the insurer.
(b) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants, Chapter 15 [repealed] of Title 3, and rules promulgated by the District of Columbia Board of Accountancy.
(b-1) A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration; provided, that in the event of a delinquency proceeding commenced against the insurer under Chapter 13 of this title [§ 31-1301 et seq.], the mediation or arbitration provision shall operate at the option of the statutory successor.
(c)(1) The lead or coordinating audit partner having primary responsibility for the audit shall not act in that capacity for more than 5 consecutive years. A lead or coordinating auditor 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 5 consecutive years. An insurer may make application to the Mayor for relief from the above rotation requirement on the basis of unusual circumstances. Any application shall be made at least 30 days before the end of the calendar year. The Mayor may consider the following factors in determining if the relief should be granted:
(A) The number of partners, the expertise of the partners, or the number of insurance clients in the currently registered firm;
(B) The premium volume of the insurer: or
(C) The number of jurisdictions in which the insurer transacts business.
(2) The insurer shall file, with its annual statement filing, the approval for relief from subsection (c)(1) of this section with the jurisdictions in which it holds a license or does business and the NAIC. If a nondomestic jurisdiction accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.
(d) The Mayor shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report prepared, in whole or in part, by any natural person who:
(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, approved October 15, 1970 (84 Stat. 941; 18 U.S.C. § 1961 et seq.), or any dishonest conduct or practices under federal or state law;
(2) Has been found to have violated the insurance laws of the District of Columbia with respect to any previous reports submitted under this chapter; or
(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under this chapter.
(e) The Mayor, as provided in §§ 31-2502.03 and 31-4305, may hold a hearing to determine whether an independent public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to this chapter and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this chapter.
(f)(1) The Mayor shall not recognize as a qualified independent certified public accountant, or accept an annual audited financial report, prepared in whole or in part by an independent certified public accountant, who provides to an insurer, contemporaneously with the audit, the following non-audit services:
(A) Bookkeeping or other services related to the accounting records or financial statements of the insurer;
(B) Financial information systems design and implementation;
(C) Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
(D)(i) Actuarially-oriented advisory services involving the determination of amounts recorded in the financial statements.
(ii) The accountant may assist an insurer in understanding the methods, assumptions, and inputs used in the determination of amounts recorded in the financial statement only if it is reasonable to conclude that the services provided will not be subject to audit procedures during an audit of the insurer’s financial statements. An accountant’s actuary may also issue an actuarial opinion or certification of an insurer’s reserves if the following conditions have been met:
(I) The accountant or the accountant’s actuary has not performed any management functions or made any management decisions;
(II) The insurer has competent personnel or engages a third-party actuary to estimate the reserves for which management takes responsibility; and
(III) The accountant’s actuary tests the reasonableness of the reserves after the insurer’s management has determined the amount of the reserves;
(E) Internal audit outsourcing services;
(F) Management functions or human resources;
(G) Broker or dealer, investment adviser, or investment banking services;
(H) Legal services or expert services unrelated to the audit; or
(I) Any other services that the Mayor determines, by rule, are impermissible.
(2) The principles of independence with respect to services provided by the qualified independent certified public accountant are predicated on 3 basic principles: the accountant cannot function in the role of management; the accountant cannot audit its own work; and the accountant cannot serve in an advocacy role for the insurer. A violation of one or more of these principles shall impair the accountant’s independence.
(g) An insurer having direct written and assumed premiums of less than $100 million in any calendar year may request an exemption from subsection (f)(1) of this section. The insurer shall file with the Mayor a written statement explaining why the insurer should be exempt. If the Mayor finds, upon review of the statement, that compliance with subsection (f)(1) of this section would constitute a financial or organizational hardship on the insurer, an exemption may be granted.
(h) A qualified independent certified public accountant who performs the audit may engage in other non-audit services, including tax services, that are not described in or do not conflict with subsection (f) of this section, if the audit committee provides advance approval in accordance with subsection (i) of this section.
(i) All auditing services and non-audit services provided to an insurer by a qualified independent certified public accountant shall be preapproved by the audit committee. The preapproval requirement shall be waived with respect to non-audit services if:
(1) The insurer is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity; or
(2)(A) The aggregate amount of all such non-audit services provided to the insurer constitutes no more than 5% of the total amount of fees paid by the insurer to its qualified independent certified public accountant during the fiscal year in which the non-audit services are provided;
(B) The services were not recognized by the insurer at the time of the engagement to be non-audit services; and
(C) The provision of services is 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.
(j) The audit committee may delegate to one or more designated members of the audit committee the authority to grant the preapproval required by subsection (i) of this section. Any decision by a member or members to whom authority has been delegated to preapprove certain audit and non-audit services shall be formally presented to the full audit committee at its next regularly scheduled meeting.
(k)(1) The Mayor shall not recognize an independent certified public accountant as qualified for a particular insurer 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 insurer was employed by the independent certified public accountant and participated in the audit of the insurer during the one-year period preceding the date the most current statutory opinion is due. This paragraph shall apply only to partners and senior managers involved in the audit. An insurer may make application to the Mayor for relief from the requirement of this paragraph on the basis of good cause.
(2) The insurer shall file, with its annual statement filing, any approval for relief obtained pursuant to paragraph (1) of this subsection with the jurisdictions in which it holds a license or does business and with the NAIC. If a nondomestic jurisdiction accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.
(Oct. 21, 1993, D.C. Law 10-48, § 6, 40 DCR 6102; Feb. 27, 1996, D.C. Law 11-90, §§ 5(b), 5(c), 42 DCR 7155; Mar. 12, 2011, D.C. Law 18-317, § 2(e), 57 DCR 12418; Sept. 26, 2012, D.C. Law 19-171, § 84, 59 DCR 6190.)
Prior Codifications
1981 Ed., § 35-3205.
Section References
This section is referenced in § 31-310 and § 31-312.
Effect of Amendments
D.C. Law 18-317 rewrote subsecs. (a) and (c); in subsec. (e), substituted “an independent public accountant” for “a certified public accountant”; and added subsecs. (f) to (k).
The 2012 amendment by D.C. Law 19-171 deleted “that” preceding “is not” in (a)(1)(B).
Emergency Legislation
For temporary amendment of section, see § 6(b) and (c) of the Insurance Omnibus Emergency Amendment Act of 1995 (D.C. Act 11-48, May 15, 1995, 42 DCR 2544) and § 5(b) and (c) of the Insurance Omnibus Congressional Recess Emergency Amendment Act of 1995 (D.C. Act 11-97, July 19, 1995, 42 DCR 3844).
For temporary (90 day) amendment of section, see § 2(e) of Annual Financing Reporting Modernization Emergency Amendment Act of 2010 (D.C. Act 18-665, December 28, 2010, 58 DCR 80).
For temporary (90 day) addition of section, see § 3 of Annual Financing Reporting Modernization Emergency Amendment Act of 2010 (D.C. Act 18-665, December 28, 2010, 58 DCR 80).
For temporary (90 day) addition of section, see § 3 of Annual Financial Reporting Modernization Congressional Review Emergency Amendment Act of 2011 (D.C. Act 19-30, March 15, 2011, 58 DCR 2591).
For temporary (90 day) amendment of section, see § 2(e) of Annual Financial Reporting Modernization Congressional Review Emergency Amendment Act of 2011 (D.C. Act 19-30, March 15, 2011, 58 DCR 2591).
Temporary Legislation
For temporary (225 day) amendment of section, see § 5(b), (c) of Insurance Omnibus Temporary Amendment Act of 1995 (D.C. Law 11-36, September 8, 1995, law notification 42 DCR 5305).
Editor's Notes
Section 3 of D.C. Law 18-317 provided: “Sec. 3. Applicability. Section 2(e)(3) shall apply to audits of the year beginning January 1, 2010, and thereafter.”