NAMIC to Urge NAIC to Prohibit Auditor Indemnification

The National Association of Mutual Insurance Companies (NAMIC) will again urge the NAIC to prohibit auditor indemnification in engagements with mutual insurance companies.

NAMIC’s Manager of Financial Regulation, William Boyd, will testify on Dec. 10 that the Security and Exchange Commission already prohibits indemnification of the auditor in engagements with publicly held insurance companies, when he appears before the NAIC/AICPAWorking Group, during the NAIC’s winter national meeting in Chicago.

“NAMIC asks this body to clearly and unequivocally ban indemnification of the auditor and believes ample reason for doing so has been developed or shown during this body’s proceedings on this matter,” Boyd said. “We submit that regulators’ responsibilities do not permit any sanction or continuation of indemnification.”

Boyd will testify that arbitration and mediation might be useful in resolving disputes about financial statement content occurring between auditors and mutual insurance clients, but that indemnification has no place in the auditor-client relationship.

“In no instance should provision for arbitration or mediation be the auditor’s device to abdicate responsibility, and NAMIC would expect to be vigilant against such efforts,” Boyd said. “Stated another way, the presence in engagement agreements of provision for arbitration and mediation must not automatically advantage the auditor for the purpose of denying responsibility for misrepresentations of management that are manifest in financial statements and that may mislead users of those financial statements.”