California Code of Regulations › Title 10 - Investment › Chapter 5 - Insurance Commissioner › Subchapter 3 - Insurers › Article 3.3 - Annual Financial Reporting › Section 2309.14 - Requirements for Audit Committees

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
This section shall not apply to foreign or alien insurers
					 licensed in this state or an insurer that is a SOX Compliant Entity or a direct
					 or indirect wholly-owned subsidiary of a SOX Compliant Entity.
(a) The Audit Committee shall be directly
				  responsible for the appointment, compensation and oversight of the work of any
				  accountant (including resolution of disagreements between management and the
				  accountant regarding financial reporting) for the purpose of preparing or
				  issuing the audited financial report or related work pursuant to these
				  regulations. Each accountant shall report directly to the Audit
				  Committee.
(b) Each member of the
				  Audit Committee shall be a member of the board of directors of the insurer or a
				  member of the board of directors of an entity elected pursuant to Subsection
				  (e) of this section and Section
				  2309.3(c).
(c) In order to be considered independent for
				  purposes of this section, a member of the Audit Committee may not, other than
				  in the member of the Audit Committee's capacity as a member of the Audit
				  Committee, the board of directors, or any other board committee, accept any
				  consulting, advisory or other compensatory fee from the entity or be an
				  affiliated person of the entity or subsidiary thereof. However, if any law
				  requires board participation by otherwise non-independent members, that law
				  shall prevail and such members may participate in the Audit Committee and be
				  designated as independent for Audit Committee purposes, unless they are an
				  officer or employee of the insurer or one of its affiliates.
(d) If a member of the Audit Committee ceases
				  to be independent for reasons outside the member's reasonable control, that
				  person, with notice by the responsible entity to the state, may remain an Audit
				  Committee member of the responsible entity until the earlier of the next annual
				  meeting of the responsible entity or one year from the occurrence of the event
				  that caused the member to be no longer independent.
(e) To exercise the election of the
				  controlling person to designate the Audit Committee for purposes of these
				  regulations, the ultimate controlling person shall provide written notice to
				  the commissioners of the affected insurers. Notification shall be made timely
				  prior to the issuance of the statutory audit report and include a description
				  of the basis for the election. The election can be changed through notice to
				  the commissioner by the insurer, which shall include a description of the basis
				  for the change. The election shall remain in effect for perpetuity, until
				  rescinded.
(f)
(1) The Audit Committee shall require the
				  accountant that performs for an insurer any audit required by these regulations
				  to timely report to the Audit Committee in accordance with the requirements of
				  SAS 61, Communication with Audit Committees, or its replacement, including:
(A) All significant accounting policies and
				  material permitted practices;
(B)
				  All material alternative treatments of financial information within statutory
				  accounting principles that have been discussed with management officials of the
				  insurer, ramifications of the use of the alternative disclosures and
				  treatments, and the treatment preferred by the accountant; and
(C) Other material written communications
				  between the accountant and the management of the insurer, such as any
				  management or schedule of unadjusted differences.