NAC680A.183. Qualifications of independent certified public accountant.

     1. The Commissioner will not recognize a person or firm as a qualified independent certified public accountant if the person or firm:

     (a) Is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for an insurer domiciled in Canada or Great Britain, is not a chartered accountant or accounting firm; or

     (b) Has either directly or indirectly entered into an agreement of indemnity or release from liability, with respect to the audit of the insurer, where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing of other misrepresentations made by the insurer or its representatives.

     2. The Commissioner will recognize an independent certified public accountant as qualified if the accountant conforms to the standards contained in the AICPA Code of Professional Conduct and Bylaws. As used in this subsection, “AICPA” means the American Institute of Certified Public Accountants.

     3. A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to the annual Audited Financial Report that has been certified by the independent certified public accountant resolved by mediation or arbitration. If a delinquency proceeding has commenced against an insurer pursuant to chapter 696B of NRS, any such mediation or arbitration provision is enforceable at the option of the statutory successor in interest to the insurer.

     4. Beginning with the reporting period beginning on January 1, 2010, and subject to the provisions of subsections 5, 6 and 7, the lead or coordinating audit partner having primary responsibility for the audit may not act in that capacity for more than 5 consecutive years, beginning when the insurer registers the independent certified public accountant with the Commissioner pursuant to NAC 680A.183. The independent certified public accountant 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.

     5. An insurer may apply to the Commissioner for permission for an independent certified public accountant to continue in his or her capacity in rendering the annual Audited Financial Report of the insurer for more than 5 consecutive years or to return to a position which would be responsible for rendering an annual Audited Financial Report for the insurer and its subsidiary or affiliate in less than 5 years, upon a showing of unusual circumstances. The application must be made at least 30 days before the end of the calendar year.

     6. The Commissioner will consider, without limitation, the following factors in determining whether to grant an exception pursuant to subsection 5:

     (a) Whether the independent certified public accountant is an accounting firm, the number of partners within the accounting firm and the expertise of those partners;

     (b) The number of insurers who are clients of the accounting firm;

     (c) The premium volume of the insurer; and

     (d) The number of jurisdictions in which the insurer transacts business.

     7. The insurer shall file with its annual statement filing the approval from the Commissioner for the exception granted pursuant to subsection 5 with the states in which it is licensed or doing business and with the National Association of Insurance Commissioners. If the nondomestic state accepts electronic filing with the National Association of Insurance Commissioners, the insurer shall file the approval in an electronic format acceptable to the National Association of Insurance Commissioners.

     8. The Commissioner will not recognize as a qualified independent certified public accountant, or accept an annual Audited Financial Report prepared in whole or in part by, a natural person who:

     (a) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 to 1968, inclusive, or any dishonest conduct or practices under federal or state law;

     (b) Has been found to have violated any provision of title 57 of NRS or any regulation adopted pursuant thereto with respect to any previous reports submitted pursuant to NRS 680A.265 and the regulations adopted pursuant thereto; or

     (c) Has demonstrated a pattern or practice of failing to detect or disclose material information in any previous annual Audited Financial Report filed pursuant to NRS 680A.265 and the regulations adopted pursuant thereto.

     9. The Commissioner may, pursuant to the provisions of NAC 679B.161 to 679B.480, inclusive, hold a hearing to determine whether an independent certified public accountant is qualified for the purposes of NRS 680A.265 and the regulations adopted pursuant thereto. If, based on the evidence presented, the Commissioner determines 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 NRS 680A.265 and the regulations adopted pursuant thereto, the Commissioner may require the insurer to replace the accountant with an independent certified public accountant who is qualified.

     10. Except as otherwise provided in subsection 12, the Commissioner will not recognize as a qualified independent certified public accountant, or accept an annual Audited Financial Report prepared in whole or in part by, an accountant who provides to an insurer, contemporaneously with the audit, any of the following nonaudit services:

     (a) Bookkeeping or other services relating to the accounting records or financial statements of the insurer.

     (b) The design and implementation of a financial information system.

     (c) Appraisal or valuation services, fairness opinions or contribution-in-kind reports.

     (d) Actuarially oriented advisory services involving the determination of amounts recorded in the financial statements. 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:

          (1) Neither the accountant nor the accountant’s actuary have performed any management functions or made any management decisions;

          (2) The insurer has competent personnel or engages a competent third-party actuary to estimate the reserves for which management takes responsibility; and

          (3) 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 function or human resources.

     (g) Broker or dealer, investment advisor or investment banking services.

     (h) Legal services or expert services unrelated to the audit.

     (i) Any other services that the Commissioner determines are impermissible.

     11. With respect to services provided by a qualified independent certified public accountant, the principles of independence are based on, without limitation, the following three basic principles and any violation of these principles would impair the accountant’s independence:

     (a) The accountant may not function in the role of management;

     (b) The accountant may not audit his or her own work; and

     (c) The accountant may not serve in an advocacy role for the insurer.

     12. An insurer having direct written and assumed premiums of less than $100 million in any calendar year may request an exemption from the provisions of subsection 10. To make such a request the insurer must file with the Commissioner a written statement discussing the reasons why the insurer should be so exempt. If the Commissioner finds, upon review of this statement, that compliance with NAC 680A.173 to 680A.211, inclusive, would constitute a financial or organizational hardship upon the insurer, the Commissioner will grant the exemption.

     13. A qualified independent certified public accountant who performs the audit may engage in other nonaudit services, including tax services, that are not described in subsection 10 or that do not conflict with subsection 10 only if the activity is approved in advance by the audit committee, in accordance with subsection 14.

     14. All auditing services and nonaudit services provided to an insurer by the qualified independent certified public accountant of the insurer must be preapproved by the audit committee. The preapproval requirement is waived with respect to nonaudit services if:

     (a) The insurer is a SOX Compliant Entity or a direct or indirect wholly owned subsidiary of a SOX Compliant Entity; or

     (b) The following conditions are met:

          (1) The aggregate amount of all such nonaudit services provided to the insurer constitutes not more than 5 percent of the total amount of fees paid by the insurer to its qualified independent certified public accountant during the fiscal year in which the nonaudit services are provided;

          (2) The services were not recognized by the insurer at the time of the engagement to be nonaudit services; and

          (3) The services are promptly brought to the attention of the audit committee and, before completion of the audit, are approved 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.

     15. The audit committee may delegate to one or more designated members of the audit committee the authority to grant the preapprovals required by subsection 14. The decisions of any member to whom this authority is delegated must be presented to the full audit committee at each of its scheduled meetings.

     16. Except as otherwise provided in subsection 17, the Commissioner will 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 that insurer during the 1-year period preceding the date on which the most current statutory opinion is due. This section only applies to partners and senior managers involved in the audit.

     17. The Commissioner may, upon a written application by the insurer, grant an exception from the provisions of subsection 16 on the basis of unusual circumstances.

     18. The insurer shall file, with its annual statement filing, a copy of the approval of the exception granted pursuant to the provisions of subsection 17 with any state in which it is licensed or doing business and with the National Association of Insurance Commissioners. If the nondomestic state accepts electronic filing with the National Association of Insurance Commissioners, the insurer shall file the approval in an electronic format acceptable to the National Association of Insurance Commissioners.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)