§ 58-10-210. Qualifications of independent certified public accountant. - North Carolina Statutes

§ 58‑10‑210. Qualifications of independent certified public accountant.

(a)        The Commissionershall not recognize a person or firm as a qualified independent certifiedpublic accountant if the person or firm:

(1)        Is not in goodstanding with the North Carolina State Board of Certified Public AccountantExaminers and in all other states in which the accountant is licensed topractice, or, for a Canadian or British company, that is not a charteredaccountant; or

(2)        Has either directlyor indirectly entered into an agreement of indemnity or release from liability,collectively referred to as indemnification, with respect to the audit of theinsurer.

(b)        Except as otherwiseprovided in this Part, the Commissioner shall recognize an independentcertified public accountant as qualified as long as he or she conforms to thestandards of his or her profession, as contained in the Code of ProfessionalEthics of the AICPA and Rules and Regulations and Code of Ethics and Rules ofProfessional Conduct of the North Carolina State Board of Certified PublicAccountant Examiners or similar code.

(c)        A qualifiedindependent certified public accountant may enter into an agreement with aninsurer to have disputes relating to an audit resolved by mediation orarbitration. However, in the event of a delinquency proceeding commencedagainst the insurer under Article 30 of this Chapter, the mediation orarbitration provisions shall operate at the option of the statutory successor.

(d)        Lead Audit PartnerRotation Required.

(1)        The lead orcoordinating audit partner, having primary responsibility for the audit, maynot act in that capacity for more than five consecutive years. The person shallbe disqualified from acting in that or a similar capacity for the same companyor its insurance subsidiaries or affiliates for a period of five consecutiveyears. An insurer may apply to the Commissioner for relief from the rotationrequirement on the basis of unusual circumstances. This application shall bemade at least 30 days before the end of the calendar year. The Commissioner mayconsider any of the following factors in determining if the relief should begranted:

a.         The number ofpartners, expertise of the partners, or the number of insurance clients in thecurrently registered firm.

b.         The premium volumeof the insurer.

c.         The number ofjurisdictions in which the insurer transacts business.

(2)        The insurer shallfile, with its annual statement filing, the approval for relief grantedpursuant to subdivision (1) of this subsection with the states in which it islicensed or doing business and with the NAIC. If the nondomestic state acceptselectronic filing with the NAIC, the insurer shall file the approval in anelectronic format.

(e)        The Commissionershall neither recognize as a qualified independent certified public accountant,nor accept an annual audited financial report prepared, in whole or in part, bya natural person who meets any of the following criteria:

(1)        The person has beenconvicted of fraud, bribery, a violation of the Racketeer Influenced andCorrupt Organizations Act, 18 U.S.C. §§ 1961 to 1968k, or any dishonest conductor practices under federal or state law.

(2)        The person has beenfound to have violated the insurance laws of this State with respect to anyprevious reports submitted under this Part.

(3)        The person hasdemonstrated a pattern or practice of failing to detect or disclose materialinformation in previous reports filed under the provisions of this Part.

(f)         The Commissionermay, as provided in G.S. 58‑2‑50, hold a hearing to determinewhether an independent certified public accountant is qualified and,considering the evidence presented, may rule that the accountant is notqualified for purposes of expressing his or her opinion on the financialstatements in the annual audited financial report made pursuant to this Partand require the insurer to replace the accountant with another whoserelationship with the insurer is qualified within the meaning of this Part.

(g)        Independence ofServices.

(1)        The Commissionershall not recognize as a qualified independent certified public accountant noraccept an annual audited financial report prepared, in whole or in part, by anaccountant who provides to an insurer, contemporaneously with the audit, any ofthe following nonaudit services:

a.         Bookkeeping or otherservices related to the accounting records or financial statements of theinsurer.

b.         Financialinformation systems design and implementation.

c.         Appraisal orvaluation services, fairness opinions, or contribution‑in‑kindreports.

d.         Actuarially orientedadvisory services involving the determination of amounts recorded in thefinancial statements. The accountant may assist an insurer in understanding themethods, assumptions, and inputs used in the determination of amounts recordedin the financial statement only if it is reasonable to conclude that theservices provided will not be subject to audit procedures during an audit ofthe insurer's financial statements. An accountant's actuary may also issue anactuarial opinion or certification on an insurer's reserves if all of thefollowing conditions have been met:

1.         Neither theaccountant nor the accountant's actuary has performed any management functionsor made any management decisions.

2.         The insurer hascompetent personnel, or engages a third‑party actuary to estimate thereserves for which management takes responsibility.

3.         The accountant'sactuary tests the reasonableness of the reserves after the insurer's managementhas determined the amount of the reserves.

e.         Internal auditoutsourcing services.

f.          Managementfunctions or human resources.

g.         Broker or dealer,investment adviser, or investment banking services.

h.         Legal services orexpert services unrelated to the audit.

i.          Any other servicesthat the Commissioner determines, by administrative rule, are impermissible.

(2)        In general, theprinciples of independence with respect to services provided by the qualifiedindependent certified public accountant are largely predicated on three basicprinciples, violations of which would impair the accountant's independence. Theprinciples are that the accountant cannot function in the role of management,cannot audit his or her own work, and cannot serve in an advocacy role for theinsurer.

(h)        Insurers havingdirect written and assumed premiums of less than one hundred million dollars($100,000,000) in any calendar year may request an exemption from subdivision(1) of subsection (g) of this section. The insurer shall file with theCommissioner a written statement discussing the reasons why the insurer shouldbe exempt from these provisions. If the Commissioner finds, upon review of thisstatement, that compliance with this Part would constitute a financial ororganizational hardship upon the insurer, an exemption may be granted.

(i)         A qualifiedindependent certified public accountant who performs the audit may engage inother nonaudit services, including tax services, that are not described insubdivision (1) of subsection (g) of this section or that do not conflict withthe principles set forth in subdivision (2) of subsection (g) of this section,only if the activity is approved in advance by the audit committee, inaccordance with subsection (j) of this section.

(j)         All auditingservices and nonaudit services provided to an insurer by the qualifiedindependent certified public accountant of the insurer shall be preapproved bythe audit committee. The preapproval requirement is waived with respect tononaudit services if the insurer is a SOX‑compliant entity or is a director indirect wholly owned subsidiary of a SOX‑compliant entity or all ofthe following apply:

(1)        The aggregate amountof all such nonaudit services provided to the insurer constitutes not more thanfive percent (5%) of the total amount of fees paid by the insurer to itsqualified independent certified public accountant during the fiscal year inwhich the nonaudit services are provided.

(2)        The services werenot recognized by the insurer at the time of the engagement to be nonauditservices.

(3)        The services are promptlybrought to the attention of the audit committee and approved before thecompletion of the audit by the audit committee or by one or more members of theaudit committee who are the members of the board of directors to whom authorityto grant such approvals has been delegated by the audit committee.

(k)        The audit committeemay delegate to one or more designated members of the audit committee theauthority to grant the preapprovals required by subsection (j) of this section.The decisions of any member to whom this authority is delegated shall bepresented to the full audit committee at each of its scheduled meetings.

(l)         Cooling‑OffPeriod.

(1)        The Commissionershall not recognize an independent certified public accountant as qualified fora particular insurer if a member of the board, president, chief executiveofficer, controller, chief financial officer, chief accounting officer, or anyperson serving in an equivalent position for that insurer was employed by theindependent certified public accountant and participated in the audit of thatinsurer during the one‑year period preceding the date that the mostcurrent statutory opinion is due. This section shall only apply to partners andsenior managers involved in the audit. An insurer may apply to the Commissionerfor relief from this requirement on the basis of unusual circumstances.

(2)        The insurer shallfile, with its annual statement filing, the approval for relief grantedpursuant to subdivision (1) of this subsection with the states in which it islicensed or doing business and the NAIC. If the nondomestic state acceptselectronic filing with the NAIC, the insurer shall file the approval in anelectronic format.  (2009‑384,s. 1.)